Planning for long-term investment is part and parcel of life. Every employee with a regular income must have heard of Provident Fund (PF) or Employee Provident Fund (EPF) at least once. It is a mandatory retirement savings scheme managed by the EPFO (Employee Provision Fund Organization) under the Government of India.

Every organization with a labor force of more than 20 people must be registered with EPFO. A portion of the employee’s salary is deducted each month (12%), and the employer needs to contribute an equal amount and deposit it in your provident fund account.

The amount contributed by the employer is entirely tax-free while the one contributed by the employee is taxable, but you can claim for tax deductions under Section 80C of the Income Tax Act of India.

How Does an EPF Work?

  • A Universal Account Number (UAN) is generated for each employee contributing to an EPF account.
  • The UAN ID remains the same throughout life for each employee even if the person switches his/her job.
  • On the basis of the UAN number, online services like SMS for each contribution and deposit, passbook facility, and KYC update.
  • As per the Provident Fund Act, not all the contribution made is deposited in the PF account.
  • A part from the employer’s contribution goes to the administration charges (1.11%).
  • Also, a portion (8.33%) goes to the EDLIS (Employee Deposit Linked Insurance Scheme) if the company has not taken a group insurance policy for their employees.
  • The remaining 15.67% of their contribution is deposited in the PF account. This distribution is done and managed by EPFO.
  • As per the Provident Fund rules you can withdraw the money from your PF account when you retire or when the account matures.
  • There is provision for premature withdrawal. You can withdraw a part of your funds for immediate events like marriage, higher education, and medical emergencies.
  • Any employee facing an issue for withdrawing their PF fund due to any reason can submit Form 19 and Form 10C and withdraw their money without their employer’s consent.
  • The form must be attested and submitted to the office in which your EPF account is opened.

Tax Deductions

As mentioned above, you can claim for tax deductions for the contributions you make if you are an employee. You can claim for tax deductions of up to Rs. 1 lakh only. Similarly, if the employer’s contribution exceeds Rs. 1 lakh, the contribution will be completely taxable. The current interest rate defined by the government on an EPF account is 8.55%.

This rate is decided and can be changed by the government of India. If you have completed five years of servicing your employer with a regular EPF contribution, you can withdraw your money for specific reasons without paying any tax. Although, this taxation is not applicable if you are withdrawing money due to any serious injury or illness. For employees working in government offices, the entire EPF income is tax-free.

Is EPF alone enough for a Good Retirement Corpus?

Although having a PF account is mandatory, you might wish to accumulate more funds to build a strong retirement corpus. Along with a secure PF account, you can make additional investments for your retirement with a Fixed Deposit (FD). An FD is a type of term deposit where you can invest a lump sum of amount for a fixed tenor and a fixed/fluctuating interest rate.

You can choose the tenor of your FD from 12 months to 60 months according to your financial requirements. Moreover, unlike a PF account, you can open multiple FD accounts and ladder your investments and maintain liquidity. Popular financial providers like NBFCs offers an attractive interest rate (up to 9.10% for senior citizens).

NBFCs is accredited with CRISIL’s FAAA and ICRA’s MAAA stable ratings making it one of the most preferred financial provider. You can make investments by filling up a quick application form easily available on the website.