Every person needs social security, especially after their employable years are over. Employees in the organized sector have this kind of social security in the form of their Provident Fund. The Employee Provident Fund (EPF) is a post-retirement benefit scheme every salaried employee can avail from their employer.
How does the EPF work?
The EPF scheme envisages every employer to deduct a specific sum from the salary of their employees every month and deposit it into their EPF account. The employer matches the deduction with a contribution from their side. The EPF amount is payable to the employee with interest after their retirement. In addition, the employee can avail of a loan against their PF balances to meet family exigencies. Premature withdrawal is also allowed under specific circumstances.
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Benefits of EPF
Having an EPF account has the following benefits.
- It is a social security corpus that allows you to lead a respectable life after your retirement.
- The contributions are made monthly from your salary. Your employer matches your contribution from their side. So, it does not require a one-time investment.
- Your contributions to the EPF account allow for tax concessions. The PF balances come under the EEE category, where the contributions, the interest, and the accumulated withdrawal are exempt from income tax.
- It can work as a financial backup for emergencies. Thus, it is the best method of saving money from salary.
Who is eligible for an EPF account?
- Salaried employees with a salary of less than Rs 15,000 per month (Basic plus DA) should join the EPF scheme. Those drawing a salary of more than Rs 15,000 can register for the EPF scheme with the employer’s consent and the Assistant PF commissioner’s approval.
- All organizations employing more than 20 employees are mandated to register for the EPF scheme. However, business entities hiring less than 20 employees can register voluntarily.
If the organization has more than 20 employees, the monthly contribution from the employer and the employee is 12% of the following components of the salary (Basic salary + Dearness Allowance + Retaining Allowance). The contribution is 10% in organizations with less than 20 employees.
The employee’s contribution of 12% goes into the EPF account, whereas the employer’s contribution is divided in the following manner.
- 3.67% towards the EPF
- 8.33% towards the EPS (Employee Pension Scheme)
- 0.50% towards the EDLIS (Employee Deposit Link Insurance Scheme)
- 1.10% towards EPF Admin charges
- 0.01% towards EDLIS Admin charges
The current interest rate applicable on EPF A/c is 8.10%
The Indian Government announced in the Union Budget 2021 that the tax-free return for PF A/C has been restricted to Rs 2.5 lakhs from the existing Rs 7.5 lakhs. This amount is taxable at the time of the withdrawal of the PF account. This tax component is on the employer’s contribution alone and not the employee’s contribution.
How to apply for an EPF account?
The employee’s enrollment for the PF account is at the employer’s discretion. The employer is responsible for registering the employee’s name for the PF. If you are switching jobs and already have a job, you can transfer the existing PF account. There is no necessity to open a new account.
Once you are eligible for the PF scheme, the employer completes the enrollment formalities. First, however, you have to submit various documents.
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Services offered by the EPF Office to all EPF account holders
- The EPFO provides online registration for the EPF account.
- Every account holder gets a unique UAN (Universal Account Number) that remains the same for the employee irrespective of whether they switch jobs mid-career.
- Online subscription payment options are available.
- It is possible to generate EPF challan online.
- The EPFO handles all transfer claims and grievances online.
The Employee Provident Fund (EPF) is ideal for saving money from salary because it is a compulsory deduction. In addition, since the employer matches the employee contribution, the EPF is often considered the best way of saving money from salary.
EPF Vs. Chit Funds
The EPF is often equated with the chit fund scheme because of monthly contributions. However, there is no comparison between the EPF and the best chits in India. If you see what chit fund business is, you will understand the difference. A chit fund is a savings cum borrowing money scheme offered by registered chit fund platforms like Money Club, where the member contributes a pre-decided amount monthly. Then, the members can participate in bidding to get the monthly payout from the money pool. The member prepared to sacrifice the highest amount gets the pooled amount. The other members share the amount forgone by the winner as dividend. .
Every employer is required by the EPF plan to deduct a set amount from their employees' salaries each month and deposit it into their EPF account. The deduction is matched by a contribution from the employer. After the employee retires, the EPF sum is paid to them with interest.
Salaried employees earning less than Rs 15,000 per month (basic plus DA) are eligible to join the EPF scheme. With the consent of the employer and the approval of the Assistant PF Commissioner, anybody earning more over Rs 15,000 can join the EPF scheme. It is mandatory for all organizations employing more than 20 employees to register for the EPF scheme.
The EPF is often equated with the chit fund scheme because of monthly contributions. Chit funds can help you earn higher return on your investments. It also enables poor people to convert their small savings into lump sums. Registered chit fund platforms like Money Club, is a safe and secure online platform to join and start saving and investing. To know more download the link https://moneyclubber.com/blog/chit-fund/
Though the chit fund is a promising avenue for saving money, it does not offer social security. The EPF account is thus better because it provides social security despite offering a comparatively lower interest than the chit fund. Chit funds can help you earn higher return on your investments on the other hand.