How Employees’ Provident Fund Investments Can Help You Build A Retirement Corpus

The government on June 3 approved the lowering of the interest rate on Employees’ Provident Fund (EPF) from 8.5 per cent to 8.1 per cent for the financial year 2021-22. This is the lowest interest rate in EPF since 1977-1978, when it stood at 8 per cent. 

That said, the EPF still remains one of the best options for creating a retirement corpus, especially for the salaried employees working in the government or large private sector organisations.

What Is EPFO? 

The EPF happens to be the main investment scheme under the Employees’ Provident Funds and Miscellaneous Act, 1952. The employee and employer each contribute 12 per cent of the employee’s basic salary and dearness allowance towards EPF. The scheme is managed under the aegis of the Employees’ Provident Fund Organisation (EPFO). 

The EPFO is a non-constitutional body that promotes employees to save funds for their retirement. The organisation is governed by the Ministry of Labour and Employment, Government of India, and was launched in 1951. The schemes offered by the organisation cover Indian workers and international workers (from countries with whom the EPFO has signed bilateral agreements).

Benefits Of EPF

The EPF scheme helps the employees in saving money for the long term. There is no requirement to make a single, lump sum investment. Deductions are made on a monthly basis from the employee’s salary, and it helps in saving a huge amount of money over a long period. 

EPF can help an employee financially during an emergency. It also helps in saving money for one’s retirement, thereby helping the retired individual maintain a decent lifestyle in his/her retirement years.

EPF Criteria

For salaried employees, with an income of less than Rs 15,000 per month, it is compulsory to register for an EPF account. Employees who earn more than Rs 15,000 can also register for an EPF account; however, they must get approval from the Assistant PF Commissioner. 

It is also mandatory under law for organisations to register for the EPF scheme if they have more than 20 employees working for them. Organisations with less than 20 employees can also join the EPF scheme on a voluntary basis.

Checking Your EPF Balance

There are four ways in which you can check your EPF balance. The process of checking your EPF balance through the EPFO member portal is easy. You need to log in to your EPF portal using your UAN and password. 

After logging in, you will be able to find the EPF balance under the member ID. You can download the Unified Mobile Application for New-age Governance (UMANG) app and perform the EPF balance check on your mobile phone. 

You can also raise and track claims through this app. It is possible to check your EPF balance by giving a missed call to the number, 011-22901406, from your registered phone number. If your UAN is activated, you can send an SMS to 7738299899 for EPF balance check.

Withdrawal From EPF Account

You can withdraw from the EPF account for some special occasions or emergencies, such as the purchase of a house, wedding expenses, or for medical expenses. The amount of money that can be withdrawn will be based on the reasons for the withdrawal. It should be noted that there is a lock-in period for partial withdrawal, and this also varies based on the withdrawal purpose. The entire PF amount can be withdrawn under several circumstances. Some of these include the attainment of retirement age, resignation due to permanent total mental/bodily incapacity, permanent relocation to other countries, death of the member, etc.

However, it is advisable to not withdraw EPF before five years of service. In such cases, you will not get benefits under Section 80C of the Income Tax Act, 1961. 

In case an individual has been claiming benefits under Section 80C of the Income Tax Act, 1961 and withdraws his/her PF amount completely, the interest that has been earned on the employee’s contribution must be taxed. 

In case any PF withdrawal is done within five years of service, the amount that is withdrawn is added to the taxable income. In case the amount that is withdrawn is more than Rs 50,000, and the withdrawal is done within five years, there is a 10 per cent tax cut on the amount. However, on submitting Form 15G and 15H with the Income Tax Department, individuals are exempted from paying this amount.