According to its website, EPFO is one of the world’s largest social security organizations in terms of clientele and financial activities. The retirement fund organization has around 19.34 crore accounts, according to the 2016-17 Annual Report. But do you realize how essential your provident fund is to you as an individual? Every month, your employer may make employee contributions to the Employees’ Provident Fund (EPF) account from your pay. However, the Employees’ Provident Fund (EPF), sometimes known as PF, is a government-sponsored savings plan for employees in the organized sector.
You should be aware that every month, both the employer and the employee must contribute 12% of the employee’s basic salary and dearness allowance to the PF account. Employees of firms that are registered under the EPF Act are the only ones who can invest in the EPF or PF.
Benefits of PF account
The Employee Provident Fund (EPF) is one of the most popular investment plans among the country’s salaried class. EPF advantages are available to all businesses with 20 or more employees. Unfortunately, the interest rate on it has consistently declined over the last three years, reaching a five-year low of 8.55 percent in 2017-18. It has similar benefits as that of the scss scheme. However, given the forthcoming general elections, it is likely that the rate would remain stable this year, which is fantastic news for the Employees’ Provident Fund Organisation’s roughly six crore subscribers (EPFO).
Here are some of the advantages of having a PF account:
- Tax advantages
Apart from the fact that an employee’s contribution to an PF account is tax-deductible under Section 80C, the interest rate received is also tax-free similar to the scss scheme. Experts say that even if your EPF account has been idle for more than three years, it continues to collect money. Also, after five years of continuous employment, EPF withdrawals are not taxed unless the employer closes his or her firm or the employee willingly quits his or her position.
- Pension for life
While both employers and workers contribute 12% of salaries to the Employees’ Pension Fund, 8.33% of the employer’s contribution is diverted to the Employees’ Pension Scheme (EPS). Under the Employees’ Pension Scheme 1995, 10 years of contributing participation assures a lifelong pension, according to the retirement fund authority.
- Benefits from insurance
Then there are the advantages offered under the EPFO’s Employees Deposit Linked Insurance (EDLI) Scheme, which is a type of insurance. If the individual covered dies within the service period, the registered nominee will receive a lump-sum payout. EPFO increased the minimum assurance amount under this plan to Rs 2.5 lakh from Rs 1.5 lakh before in February. A maximum assurance benefit of Rs 6 lakh is available.
Any employee with an EPF account is automatically enrolled in this plan, and he or she is not required to contribute to it. Employer contributions, on the other hand, are limited to 0.5 percent of the basic wage, or a maximum of Rs 75 per employee every month. If no other group insurance program exists, the maximum monthly contribution is Rs15,000.
- Option for early withdrawal
While EPFO strongly advises against using PF money as a bank account – after all, social security benefits are only accrued when continuity is maintained – the organization does allow members to make partial withdrawals after 5-10 years of service for specific needs such as medical treatment, home loan repayment, and unemployment.
- Higher profit margins
That’s not all, though. There’s also a chance that your PF account will earn more money in the future. The EPFO invests 5 to 15% of its investible deposits in exchange-traded funds (ETFs) (ETFs). The investments, on the other hand, do not appear in members’ accounts, and they do not have the choice to raise the percentage of their retirement savings invested inequities. Furthermore, government securities must account for 45-50 percent of the PF fund, debt instruments for 35-45 percent, and money market instruments and infrastructure trusts for 5% each. As a result, the yearly return on PF contributions is significantly lower than that of NPS, which has more aggressive investment possibilities.
Every employee who meets the Rs 15,000 monthly PF payment level is required to contribute to the Provident Fund. It’s usually thought of as a retirement-oriented investment. Provident Fund, on the other hand, provides users with several extra benefits in addition to being a long-term savings plan.
A PF payment of up to Rs 1.5 lakh in a financial year is free from income tax under Section 80C of the Income Tax Act. EPFO (Employees’ Provident Fund Organisation) members receive a variety of extra perks.