The Employee Provident Fund (EPF) is among the most favoured investment vehicles by salaried class. Benefits and privileges of EPF are applied to all businesses having a minimum of 20 employees or more. Regrettably, the interest rate on it has slowly fallen over the last few years, which is currently fixed at 8.5 per cent per year (compounded yearly). But the consensus is that the rate remains unchanged for the quarter of March 21 which is breathtaking enough for the more than six crore subscribers of the Employees' Provident Fund Organisation (EPFO). Below is a glance at the strengths for salaried people holding a PF account.
At the time of settlement of the salary, the employer deducts your EPF contribution @ 12 per cent of the basic salary. All individuals with a minimum income of up to Rs 15,000 are obligatorily compensated by the EPF. It is optional for those above this limit. If the basic salary crosses Rs 15,000 limit, the employer has the alternative of restricting the deduction to 12% of the specified threshold rather than deducting it from the basic salary as a whole. You are allowed to claim the amount of PF deduction under Section 80C up to Rs 1.50 lakh every year for the EPF contribution withheld by your employer along with other qualifying categories such as life insurance premium, home loan reimbursement, National Saving Certificates, ELSS, children's tuition fees, and so on. An employee can allocate more than the minimum required, but under Section 80C, the deduction will be limited to the maximum of Rs 1.50 lakh. For contributions made by the employer up to 12 per cent of the basic salary after which it appears taxable in the hands of the employee, there is no tax burden for the employee.
Similarly, in the event that the gross value of the employer's contribution to the employee's EPF, Superannuation or NPS account of the employee taken together reaches Rs 7.50 lakh, the surplus becomes taxable in the employee's possession. With the exception of the provision that the contribution of an employee to an EPF account is liable under Section 80C for a tax deduction, the interest rate received is excluded from taxation. Your EPF account tends to accumulate interest even though it has been inactive for more than 3 years, as per researchers. After five years of continuous service, EPF withdrawals are still not taxable, unless the employer halts his/her company or the employee voluntarily exits from his/her employment.
Although both employers and employees allocate 12% of EPF salaries, 8.33% of the employer's contribution is allocated towards Employees' Pension Scheme (EPS). As per the retirement fund authority, under the Employees' Pension Scheme 1995, 10 years of contributory contribution offers a lifetime pension.
Privilege of insurance
Again, under the Employees Deposit Linked Insurance (EDLI) Scheme, which is an insurance policy offered by the EPFO, there are advantages promised. The authorized nominee will seek a lump-sum payout over the service period in the case of the death of the insured individual. EPFO improved the minimum guarantee cap under this scheme to Rs 2.5 lakh from Rs 1.5 lakh in 2018. At Rs 6 lakh, the overall assurance profit is limited. Each employee who has an EPF account is automatically liable for this policy, so there is no need for any contribution. On the other side, an employer's contribution refers to 0.5 per cent of the basic salary or a limit of Rs 75 per month per employee. The gross contribution is restricted at Rs 15,000 per month if there is no other group insurance plan.
Premature withdrawal facility
Contributions to an EPF account provide members with a gain by means of a tax deduction 80 C. 75 percent of the overall EPF corpus can be withdrawn after nearly a month of unemployment has occurred, according to the new EPFO regulations and laws. The remaining 25 percent proportion is completely transferable to a new account. Although the EPFO strictly recommends against using PF money like a bank account - however, social security payments only accrue when stability is kept - the body permits its members, after 5-10 years of service, to make selective withdrawals to satisfy particular requirements, including medical care, reimbursement of home loans and so on. For example, for marriage or education purposes, up to 50 percent of the contribution of an employee to the EPF can be withdrawn and a sum up to 36 times the basic salary including dearness allowance can be withdrawn for housing development. EPFO also enables up to 90 per cent of the balance of the PF account to be withdrawn to cover a home loan. The retirement fund organization also provided its subscribers with an opportunity to withdraw up to 75% of their cumulative PF balance after one month of unemployment after 2018.
Higher interest rate
PF is the common term for EPF. It is an investment plan for salaried employees of the organized sector developed up by the government. Annually, the EPF interest rate is announced by the EPFO (Employees Provident Fund Organisation), which is a legislative body under the Provident Fund of Employees Act, 1956. The interest rate on the EPF account has been set at 8.50 per cent for the existing fiscal year. The EPF or PF can be invested in only by employees of organizations regulated under the EPF Act. Every month, both the employer and the employee are required to contribute 12% of the basic salary plus dearness allowance of the employee towards EPF. Annually, the EPFO announces the EPF rate centered on the yields of the corpus of the EPF. 8.50 per cent is the new EPF rate, whereas 7.1 per cent is the current PPF rate. The EPF rate has also traditionally been marginally higher (8.65 per cent) than the existing FY 2020-21 rate and the existing PPF rate. The presence of equity in the EPF, though, leaves it vulnerable to market fluctuations. A market downturn can render it challenging for the EPFO to sustain the interest rate of the EPF. If compared to the current interest rate on FDs of the leading commercial banks such as SBI, ICICI, HDFC, Axis and so on the interest rate of EPF is much higher.