Provident Fund (PF)

Provident Fund (PF): A Comprehensive Guide

The Provident Fund (PF) is a government-backed savings scheme that aims to provide financial security to employees after their retirement. It is a mandatory scheme in India for employees working in certain sectors, and it helps individuals save for their retirement while also offering various other benefits, including insurance and tax advantages.

What is Provident Fund (PF)?

The Provident Fund (PF) is a retirement benefit scheme that is managed by the Employees' Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment, Government of India. Under the scheme, both the employee and employer contribute a certain percentage of the employee’s salary to a fund, which accumulates over time and is available to the employee upon retirement or for other specified circumstances.

Key Features of Provident Fund (PF)

1. Employee and Employer Contributions
• Both the employee and employer contribute to the PF fund. Typically, each contributes 12% of the employee's basic salary (subject to the wage limit), though this may vary based on the company policies.
• The employer’s contribution is further divided into:
• 8.33% for the Employees’ Pension Scheme (EPS).
• The remaining 3.67% is deposited in the Provident Fund (PF).
2. Tax Benefits
• Contributions to the PF are eligible for tax deductions under Section 80C of the Income Tax Act, up to a limit of Rs. 1.5 lakh annually.
• The interest earned on the PF balance is tax-free under Section 10(12) of the Income Tax Act, provided certain conditions are met (like continuous service for five years or more).
3. Interest on PF
• The interest earned on the Provident Fund balance is set by the government, typically around 8-9% per annum.
• The interest is compounded annually and is tax-free if the employee stays with the company for more than five years.
4. Withdrawal and Final Settlement
• PF balances can be withdrawn when an employee resigns, retires, or passes away.
• In case of resignation or job change, employees can transfer their PF balance to their new employer’s PF account or choose to withdraw it.
5. Pension Scheme
• The Employees’ Pension Scheme (EPS) is linked to the Provident Fund. A portion of the employer’s contribution (8.33%) is directed toward the pension scheme, ensuring that employees receive a pension after retirement.

Types of Provident Fund Accounts

1. Employees’ Provident Fund (EPF)
• This is the primary type of PF account that most employees have. Contributions are made by both the employer and employee.
2. Voluntary Provident Fund (VPF)
• In addition to the mandatory contribution, employees can choose to make voluntary contributions to their PF account. The contributions are made at their discretion, and they are eligible for tax benefits under Section 80C.
3. Public Provident Fund (PPF)
• Though not directly related to employment, the PPF is another government-backed savings scheme in India. It is a long-term investment plan available to individuals to save for their retirement, with a fixed interest rate and tax benefits.

Eligibility for Provident Fund (PF)

1. Employees of Companies with 20 or More Employees
• The PF scheme is applicable to companies with 20 or more employees, under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
2. Employees Earning Less Than Rs. 15,000 per Month
• Any employee earning a basic salary of Rs. 15,000 or less per month is required to enroll in the Provident Fund scheme.
3. Exemptions
• Employees earning more than Rs. 15,000 per month can choose not to be a part of the Provident Fund scheme, although they can voluntarily contribute to it.

How to Check Your Provident Fund (PF) Balance

You can check your PF balance through several methods:

1. EPFO Portal
• Visit the EPFO member portal (https://www.epfindia.gov.in) and log in using your Universal Account Number (UAN) to view your PF balance.
2. SMS Service
• You can send an SMS to 7738299899 with your UAN to receive a balance update.
3. Mobile App
• The UMANG (Unified Mobile Application for New-age Governance) app allows you to check your EPF balance, view passbook details, and manage your PF account.
4. Missed Call Service
• You can give a missed call to 011-22901406 from your registered mobile number to get the balance details via SMS.

How to Withdraw or Transfer Your Provident Fund (PF)?

1. PF Transfer
• If you change your job, you can transfer your PF balance from your old employer’s account to your new employer’s account. This is done through the EPFO portal or by submitting a request to the new employer.
2. PF Withdrawal
• If you leave your job or retire, you can withdraw the accumulated balance from your PF account.
• Online Withdrawal: You can withdraw your PF balance online using your UAN and Aadhaar authentication. No employer intervention is required for this process.
• Offline Withdrawal: In case you are not able to do it online, you can fill out Form 19 and submit it to the EPFO office.
3. Partial Withdrawal
• Under certain conditions, you can withdraw a portion of your PF balance for purposes like medical treatment, education, home loan repayment, or buying a house.

Pension under the Provident Fund Scheme

The Employees’ Pension Scheme (EPS), which is linked with the Provident Fund, provides employees with a pension after they retire. The pension amount depends on the number of years of service, salary, and the contribution made by the employer.

• Eligibility: Employees who have contributed to the EPS for a minimum of 10 years can avail of the pension after reaching the age of 58 years.
• Pension Calculation: The pension is calculated based on the average monthly salary for the last 60 months of service.

Provident Fund (PF) Taxation

1. Employee Contributions
• Employee contributions to the PF are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh.
2. Employer Contributions
• The employer’s contribution to the PF is not taxable at the time of contribution but is taxable if withdrawn before five years of continuous service.
3. Interest Earned on PF
• The interest earned on the PF balance is tax-free if the employee completes at least five years of continuous service. Otherwise, it is taxed as income in the year of withdrawal.
4. Tax on Withdrawal
• If the employee withdraws the PF balance before completing five years of service, both the employee and employer contributions (including interest) become taxable.

Benefits of Provident Fund (PF)

1. Long-Term Savings
   PF ensures long-term savings for retirement, helping employees accumulate a substantial amount by the time they retire.
2. Compounded Interest
   The interest on the PF balance is compounded annually, leading to a substantial growth of the corpus over the years.
3. Tax Benefits
   Contributions to the PF are eligible for tax deduction, and the interest earned is tax-free, making it an attractive investment option.
4. Security and Stability
   The Provident Fund scheme provides financial security to employees and serves as a buffer for post-retirement life.
5. Insurance Coverage
   In the case of the employee’s death, the PF balance is paid to the nominee. Additionally, Employees' Deposit Linked Insurance (EDLI) offers a life insurance cover to the employee’s family.

Conclusion

The Provident Fund (PF) scheme is a crucial element of India’s social security system, offering employees a safe and tax-advantageous way to save for their retirement. It also provides financial protection through pension schemes and insurance cover. Employers and employees both benefit from the system, as it ensures long-term savings, tax benefits, and a steady income after retirement.

If you're a business owner or an employee looking to understand or manage your Provident Fund, don’t hesitate to reach out for further assistance.