Benefits of Investing in the EPF
Although people’s motivations for investing money vary, most begin saving with the objective of retiring comfortably, providing for their family, and maintaining their standard of living.
There are many financial assets, but the Employee Provident Fund (EPF) is the only one that meets all of the above needs and many more.
We attempt to simplify investing in EPF and how it might protect your future in this article.
What is EPF?
The Employee Provident Fund, or EPF, is a way for all salaried workers in the country to save for their retirement. The government backs this plan, which has a fixed rate of interest.
The Employees Provident Fund Organization (EPFO) is a legal body run by the Ministry of Labour and Employment. It is in charge of the fund and makes sure it is run properly. The EPFO also controls both the employer’s and employee’s contributions to the EPF.
Government-managed plans like the Employee Pension Scheme (EPS) and the Employee Deposit Linked Insurance Scheme (EDLIS) are all rolled into one umbrella programme called the EPF Scheme (EDLI).
The salaried class can build up a large retirement fund through these plans by making monthly payments while they are working. Together, the employer and employee are responsible for putting away 12% of the employee’s monthly salary into the fund, for a total of 24% of each paycheck.
How do I know if I’m qualified to join EPF India?
The EPFO is open to all workers in both the government sector and the private sector. Companies with more than 20 members are required to offer EPF to their workers.
Features of the Employee Provident Fund (EPF)
The list below shows some of the most important parts of EPF:
- In a health or financial emergency, an employee can take money out of the fund before it is fully grown.
- Anyone in the employee’s family can be nominated.
- The nominee can claim the saved money when the employee dies.
- If the employee quits their job, they have two months to withdraw funds from the EPF account.
- Employees also get a life insurance policy with their EPF. When the employee dies, the nominee can file a claim with the insurance company.
- According to the rules of the Volunteer Provident Fund, employees can contribute more than the minimum of 12% of their basic salary to the EPF.
Tax on EPF
Contributions and interest from Employee Provident Funds were not taxed until 2020. If your total contributions to your EPF and VPF in a given fiscal year are more than Rs. 2.5 lakh, the interest you earn on the contributions beyond Rs. 2.5 lakh will be subject to taxation, as revealed in the Budget 2021.
If the employer doesn’t put any money into the EPF account, the interest on the account is tax-free up to Rs. 5 lakh in any given financial year.
What happens to an EPF account that is not being used?
In some cases, the employee can’t put money into the EPF account for a long time, so the account stays dormant.
The Employees’ Provident Fund Organization implemented a new policy in 2011–12 that eliminated interest payments on inactive accounts older than three years and thirty-six months. Even though this was done to keep PF members from ignoring their EPF accounts, it was taken away in November 2016 after a lot of pushback.
So, even if your account hasn’t been used in more than 3 years, it will still earn interest until you turn 58.
Returns from EPFs
Every year, the EPFO proposes and approves the EPF interest rate.
In the 1990s, the EPF rate of interest shot up to almost 12%, which was a very high number. Since then, it has gone down to a more reasonable (but still high) 8.5% for the fiscal year 2020-2021.
Advantages of Investing in EPF
Workers can get a lot of benefits from investing in EPF. However, neither the company nor the employee does much to help the employee achieve financial security and independence after retirement. EPF is supposed to make them feel safe about the future instead.
The Employee Provident Fund gives these benefits:
- Funds for Old Age
The EPF plan requires employees to put away 12% of their basic pay. The amount that the employee builds this way will help them when they retire. The retired worker may relax and enjoy life without financial worries.
- Corpus
EPF helps people deal with unplanned situations like health and money problems. When things like this happen, they can use the money in their EPF account.
- Early Withdrawal
Getting money out of the EPF is easy and doesn’t cause any trouble. In case of an emergency, employees can take money out of the fund before it matures. Employees can also make incomplete withdrawals in case of an emergency.
- Saves Taxes
Any interest or earnings made via EPF are not taxed. Withdrawals made after the fund have reached their end date and are not taxed. Any money an employee puts into the EPF qualifies as a tax deduction thanks to Section 80C of the Income Tax Act. Also, after completing five years of service, you don’t have to pay taxes or TDS on any money you take out.
Conclusion
To grow your portfolio, it is always a good idea to think about different ways to invest. This lowers your risk. And it can help you get the most out of your gains.
Investing in EPF offers several advantages, as discussed in the article. You can check out more blogs about choosing the best investment vehicle at Piramal Finance.