What Is a Provident Fund?

An EPF employee provident fund is a compulsory, government-managed retirement savings scheme utilized in India, and other countries. In some ways, these funds resemble a hybrid of the 401(k) plans and Social Security utilized in the U.S. They also share some traits with employer-provided pension funds.
Workers provides a portion of their salaries to the provident fund and employers must contribute on behalf of their employees. the cash within the fund is then held and managed by the govt , and eventually withdrawn by retirees or, in certain countries, their surviving families. In some cases, the fund also pays bent the disabled who cannot work.

How does a Provident Fund Works

The money held privately savings accounts continues to grow in many developing countries, but it’s still rarely enough to supply most families with a cushty life in retirement.
The challenge of retirement has been further deepened by social change. Societies within the developing world are still catching up with the rapid rise of industrialization, the movement of citizens from rural areas to urban centres, and changing family structures. In traditional societies, for instance, the elderly was provided for by their extended families. But declining birth rates, widely dispersed relations, and longer life expectancies have made it harder to sustain this age-old safety net.
For these reasons and more, governments in many developing countries have stepped in to supply long-term support to retirees and other vulnerable populations. A provident fund finances such support during a way that readily scales payouts to the available balance and enlists employers and workers to assist cover the value.

EPF Rate of Interest

Currently, the prevailing rate on EPF deposits is 8.65%, which is the same for VPF. The EPF rate of interest is reviewed every year. The following table shows how the interest rate on EPF has changed over the past six years:

YearEPF interest rate
2019 – 208.65%
2018 – 198.65%
2017 – 188.55%
2016 – 178.80%
2015 – 168.80%
2014 – 158.75%

EPF Contributions

Each national provident fund sets its own minimum and maximum contribution levels for workers and employers. Minimum contributions can vary counting on a worker’s age. Some funds allow individuals to contribute extra to their benefit accounts, and for employers to also do so, to further benefit their workers.
Governments set the regulation at which penalty-free withdrawals are allowed to start . Some pre-retirement withdrawals could also be allowed under special circumstances, like medical emergencies. In Swaziland, provident fund payouts are often claimed at any age if the worker is emigrating permanently. In many countries, those that work past the minimum retirement age may face restricted withdrawals until full retirement.
If a worker dies before receiving benefits, his or her surviving spouse and youngsters could also be ready to receive survivors’ benefits.

EPF Tax Benefits

EPF investment comes under the category of Exempt, Exempt, Exempt (EEE) with regards to tax. It enjoys the EEE status as contributions are deductible from income. No tax is applicable on the quantity of cash you invest, the interest you earn or the quantity you withdraw at the top of its maturity. However, this tax break isn’t available if you withdraw your investment before the completion of 5 years. VPF falls under the EEE category too and offers an equivalent tax benefits as that of EPF.

Deciphering the EPF Monthly Contribution

For most employees, the contribution rate is 12%. But there are certain circumstances where a tenth rate is applicable. for instance , if a corporation meets the subsequent criteria:
• has but 20 employees,
• suffers losses that are quite its entire net worth,
• belongs to the jute, beedi, brick, coir or gum industry,
Another distinct case is that of girls employees. As per the 2018-19 Union Budget, new women employees could contribute only 8% (instead of 12%) towards their EPF account for the primary three years of employment. This was finished two reasons:
• To encourage companies to rent more women
• For women to urge a better wage.
And though women employees can contribute 8%, the applicable rate of contribution for employers continues to be 12%.
We have discussed all the various investment provisions available under EPF. But what if you would like to contribute quite 12% towards your EPF? Well, you’ll roll in the hay through something referred to as a Voluntary Provident Fund (VPF).

Fast Brief on the Voluntary Provident Fund

Like the term suggests, the Voluntary Provident Fund (VPF) may be a voluntary fund contribution you create towards your provident fund account. This contribution is beyond the 12% contribution you create towards your EPF. you’ll make a maximum contribution up to 100% of your Basic Salary and Dearness Allowance and earn interest at an equivalent rate as that of the EPF. However, the employer doesn’t need to match this voluntary contribution.

EPF Withdrawal just in case of Unemployment

In case you resign from your job and you remain unemployed for a month, you’ll withdraw up to 75% of your EPF corpus to satisfy your expenses. And if you’re unable to seek out employment after two months, you’ll withdraw the balance amount. Also remember that you simply can make use of this feature at any time. you do not need to await a particular number of years before making a withdrawal.

VPF Withdrawal

VPF allows partial withdrawals and complete withdrawals. this is often an honest choice to fall back on just in case of any unforeseen financial emergencies like paying hospital bills for yourself and/or your family. you’ll also break your VPF account open for reasons such as:
• construction or purchase of latest house or a residential plot
• repayment of an existing home equity credit
• higher education or marriage of kid
VPF is sort of popular among investors because the accumulated amount is often withdrawn at any point in time. But make sure that your account is active for five years a minimum of if you would like to avoid paying tax on the maturity amount.

Frequently Asked Questions (FAQs)

Q) How to withdraw PF online?
• Visit the EPFO website and log in using the UAN and password.
• Click on the ‘Manage tab’ and verify your KYC details.
• Visit the ‘Our Services’ section and click on on the title that says ‘Claim’ from the drop-down list.
• Under the section ‘I Want to use for’, choose the sort of withdrawal you would like to form .
• A drop-down box shows you the kinds of withdrawal you’re eligible for.
• After selecting the sort of withdrawal, your EPF claim is complete. The request is then forwarded to the employer for approval.
• Once your EPF withdrawal online process gets approved, the quantity gets credited on to your account within 10 days.

Q)What is the UAN number?
The Universal Account Number (UAN) may be a 12-digit number, allotted by the worker Provident Fund Organisation to each employee having an EPF account Each new PF account with a replacement job comes under the aegis of one unified account, through the UAN.

Q) If I switched jobs. Should I withdraw my EPF corpus or transfer my fund?
It is recommended to transfer your accumulated EPF funds into a replacement EPF account opened by the new employer. As a matter of convenience, the UAN stays constant despite the opening of a replacement EPF account.

Q)Are both the employee’s and employer’s contributions to my EPF account tax-exempt?
The employer’s contribution to your EPF is tax-free, and your contribution is tax-deductible under Section 80C of the tax Act. EPF, as an investment, enjoys the status of Exempt, Exempt, Exempt (EEE) in taxation.

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