The Provident Fund (PF) operates as a state-compelled retirement savings organization in India to provide financial security for those on the payroll. Under this system, both employer and employee contribute a certain percentage of the employee’s salary towards the PF account. Over the years, the fund gets accumulated and gets paid out in the form of a certain amount upon retirement or under certain circumstances while ensuring a settled income after retirement.
The PF system is one that operates on a very simple principle of contributions from both the employer and employees at regular intervals. This is how it does so:
Contribution: Employees deposit 12% of their basic salary in the PF account, and an equal contribution comes in from the employer. However, only 8.33% of the employer’s contribution goes towards the Employee Pension Scheme (EPS).
Interest Surplus: The amount contributed to the PF account will draw interest compounded year after year and will be declared by the government at the end of each financial year.
Withdrawal: On retirement or resignation or in certain circumstances in the event of buying a house etc. withdrawals can be made.
Tax Benefits: The contributions made towards PF account qualify for tax deductions under Section 80C of the Income Tax.
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Any organization with 20 or more workers is required to register for PF. Employees earning a basic salary of up to ₹15,000 per month qualify.
Both employer and employee contribute to PF: employees 12% and employers also contribute 12% (of which 8.33% goes to EPS).
YES, one can withdraw their PF under certain conditions – Job change, medical Emergencies, & home purchase.
PF accounts can be transferred to a new employer, with the continuity of retirement savings ensured.
No, tax is exempted on the interest earned on your PF account, making it all the merrier for long-term savings.
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