EPFO Check: All you need to know about provident funds
Provident funds (PF) are largely considered to be a safe, automated route of creating a solid retirement corpus during one’s job tenure, since you, as an employee, compulsorily contribute 12 percent of your basic salary and dearness allowance every month, which is complemented by an equivalent contribution by your employer, with the applicable interest rate standing at 8.5 percent
However, if you work for an NGO, the employer contribution rate will stand at 10 percent. As per law, all businesses which have more than 20 employees on their roll are mandated to enroll under Employee Provident Fund Organisation (EPFO).
What is important to note is that if you have a continuous service period of five years or more, your PF withdrawals will not be subjected to any taxes. This does not mean you have to have worked with a single employer only for this tenure, your cumulative work period with all your employers will be considered for this purpose. Withdrawals before 5 years are subject to TDS deduction at the rate of 10 percent of your EPF balance.
You can also withdraw 90 percent of your total corpus one year before your retirement. And with the COVID-19 pandemic having hit the economy adversely, stalling all growth and pushing down unemployment rates to almost 10.6 percent, as per recent data by CMIE (Center for Monitoring Indian Economy), provisions for PF withdrawals in lieu of job losses have also been made. You are eligible to withdraw 75 percent of your total corpus after one month of leaving the job, while you can withdraw the remaining 25 percent after the second month.
According to the latest EPF data release, around 12 lakh salaried individuals are on PF payroll, with the maximum (3,27, 019) individuals in the age group of 22-25 years of age. The retirement benefits scheme also saw enrollments of about 10,11,492 net new EPF subscribers. This included fresh joins post-2017, along with those who have exited and resubscribed to the scheme.
To maximise your PF value, it is advisable to transfer your PF from your previous to your current employer, as and when you switch jobs, instead of withdrawing your funds. Also, since your contribution to EPF is eligible for tax exemption under Section 80C, you can also consider the scheme to be an effective tax-saving instrument.
Financial strategist Nema Chhaya Buch advocates for commitment and discipline for building your retirement corpus via PFs. “Despite the rate of returns being on a constant downhill, PFs have not lost their sheen, owing to their tax advantages. Starting early investment in PF is the best way to harness the compounding effect and view it from a long-term prospect, between 15-25 years. It is advisable to maximise your contributions in this government-backed, low risk scheme to build a sizable retirement corpus”, she says.