Provident funds, apart from being a good long-term savings product, give various additional benefits to their subscribers. Provident fund is mandatory for each employee who reaches a threshold of Rs 15,000 income per month. This contribution is looked upon as a retirement-linked investment plan and can be accessed through UAN Member Portal. As per Section 80C of the IT act, an employee gets an income tax exemption on provident fund contribution of up to Rs 1,50,000 in a financial year.
EPFO (Employees’ Provident Fund Organization) offers numerous benefits to its members. EPF scheme till now has catered over 5 crore members, which is directed by 3 different acts, i.e. Employees’ Pension Scheme Act, 1995, Employees’ Provident Fund Scheme Act, 1952 and Employees’ Deposit Linked Insurance Scheme Act, 1976. This fund is formed with the fund contribution extended by the employees as well as their employer every month. Both the parties extend 12 percent each of employees’ monthly salary as part of their contribution share towards the EPF. Note that the EPF passbook can be accessed through the UAN member portal.
Note that this fund accrues a prefixed interest rate that is set by the EPFO. Accrued interest on EPF is completely tax-free and can be simply withdrawn without paying for it. Employees with this option can avail lump sum amount on the retirement, which includes the accrued interest. The individuals can submit applications for availing of different online services of the instrument by accessing the UAN member portal. UAN member portal is a user-friendly podium that makes sure to keep up the service transparency, efficiency & hassle-free.
Eligibility of becoming an EPF member
Employee provident funds are open for both employees of private and public sectors both, which means all the employees can apply for becoming an EPF members. Moreover, any business that employs at least twenty individuals is deemed liable to extend the benefits of employees EPF.
On becoming an active member of the scheme, the employee is considered highly eligible to take up the benefits such as EPF benefits, pension benefits and insurance benefits. Employees can check their EPF passbook by visiting the UAN member portal.
5 Advantages of EPF scheme
EPF schemes extend various benefits towards EPF employee members. This instils in them a sense of financial security and stability. Listed below are various benefits of EPF that their members can avail:
Capital appreciation: This PF online scheme provides a prefixed interest on deposits held with EPF. Moreover, rewards extended at maturity further ensure employees’ fund growth & appreciation of capital.
Retirement corpus: For the FY 2019-20, the rate of interest notified is 8.5%. This interest rate is direct to the pension scheme. Over the long term, the sum deposited towards EPF assists in building a healthy retirement corpus. These corpora extend a kind of financial stability, security, and independence to their holders after retirement.
Contingency corpus: Life is uncertain, and thus, staying financially prepared to witness these unwarranted occasions is the best solution to deal with such exigencies. EPF acts as a kind of emergency corpus when its holder needs emergency funds.
Tax saving: As per Section 80C of the It Act, an employee’s contribution towards the PF account is eligible for tax exemption. Also, earnings received via EPF are exempted from tax. These exemptions are allowed up to a limit of Rs 1,50,000.
Tax benefits applicable to the EPF scheme makes sure to generate higher earnings for members. This further ameliorates savings as well as individuals’ buying power in the long run.
Simple premature withdrawal: EPF members are entitled to take up the benefits of a partial withdrawal. Members can withdraw the fund from the provident account to mitigate certain requirements such as house construction, pursuing higher education, bearing the wedding costs or spending towards medical expenses.
EPF scheme rate of interest
For the financial year 2019-20, the prefixed interest rate provided by the EPF equals 8.55%. This interest amount accrued on investments in the PF account is completely tax-free. This interest is paid just on operative PF accounts of the employees who are going to retire. It must be remembered that shares contributed towards the EPF scheme does not accrue any interest. But the members are entitled to avail pension out of the accumulated sum after turning 58 years of age.
How does the EPF interest get calculated?
Interest extended on the EPF is calculated every month. It is calculated by dividing the interest p.a. by 12. This method assists in calculating the definite interest rate being offered to the EPF member at a given month. For instance, if the interest rate equals 8.55 per cent p.a., the interest rate for every month will be 8.55 divided by 12 %, i.e. 0.1723%.
Now, 12% of an individual’s salary gets directed towards the EPF account. Assuming the individual’s salary is Rs 15,000 a month – 12 % of Rs 15,000 will accrue Rs 1,800 by the end of the month, which would get transferred to his EPF account. Now the employers can contribute 3.67 percent towards the EPF account while their EPS account contribution is 8.33 percent. The contribution towards their EPF would be = 3.67 percent of Rs 15,000, which is Rs 550. Overall, EPF account contribution would be Rs 1800 + 550, which is Rs 2,350.
The accrued interest in 1 month will be Rs 2350 X 0.713 percent, which equals Rs 16.75. It should be remembered that interest accrued for a given month will just be credited to account towards the end of the current financial year.
Other crucial benefits of EPF are:
Partial fund withdrawals
EPFO permits partial fund withdrawals in a specific case like home loan repayment, medical emergency, purchase or construction of a new home, home renovation, kids, or self-wedding.
Loan against the provident fund
An EPF member can avail loan in the wake of financial exigencies with a 1% rate. However, such short-term loans should be repaid usually within 3 years of loan disbursal.
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