Overview: 7 Benefits Of Employee Provident Fund For Indian Companies
In India, every worker gets paid after the company deducts a specified amount as Provident Fund (PF). One may believe that they are unable to use their hard-earned money. The EPF, Employee Provident Fund, on the other hand, is used when a person wishes to step down from their employment. It’s amongst the most important donations that help them live comfortably.
What is an Employee Provident Fund?
Provident Fund for Employees (EPF) is a prominent savings scheme run by the Indian government. In India, employee provident fund systems are looked over by the Ministry of Labour. The EPF and Miscellaneous Provisions Act of 1952 formed the major system.
With the help of this plan, one can be provided with a good retirement fund. For salaried employees, it instills the practice of conserving cash. Both the firm and the worker put in money into the fund. Each month, every one of them must give 12% of the company’s basic wage to this account. When a person leaves, they get the total contribution (from both the employer and the employees) in one lump sum, plus interest Employee Provident Fund Organisation determines the return rate which will be earned. Furthermore, the interest earned is tax-free.
The Indian government has proposed participation in this program. As a result, because it is managed by the administration, it is seen as a minimal investment.
Monthly Contribution – Employer and Employee
Depending on the company’s basic income and dearness reimbursement, the real amount of EPF payment is computed. The following are the detailed points of worker and company EPF contributions:
- Contribution of workers to the EPF
Each month, the company deducts 12 percent of the worker’s wages as an employee provident fund contribution. The whole contribution is transferred into the worker’s EPF account.
- The input of the company to the Employee Provident Fund
Similarly, the employer matches 12% of the worker’s wage to the Employee Provident Fund.
Benefits of Employee Provident Fund (EPF)
For all working-class majority in India, the EPF system is among the most famous and biggest savings plans. The list consists of the program’s advantages:
1. Technique to save money on taxes
The sum invested as well as the interest earned is tax-free. Nevertheless, if the employee withdraws before the 5 years, it will be chargeable in his or her hands.
2. Appraisal of capital
The rate of interest on this program is set by the Indian government. This money is replenished every month. As a result, making a one-time lump-sum contribution is not a strain on the worker. The total return develops a huge amount at the age of retirement as funds and interest accumulate.
3. Funds for retirement
In the long term, this plan aids in the accumulation of an adequate retirement fund. This reservoir provides financial liberty and safety to the employees who have retired.
4. Financial Difficulties
This collected deposit can be utilized to recover any life’s unforeseen proceedings. In many kinds of unusual circumstances, the worker can access a portion of this account.
This money can be utilized to shelter the worker’s spending if he ends up losing his employment. After an individual is unemployed for a month, he/she can collect 75% of the accrued funds. And after 2 months of unemployment, the last 25% of the corpus can be taken.
The accrued EPF fund balance is distributed to the designee in the event of the worker’s death to assist the household in tough circumstances.
7. Simple to Use
Staff can use their provident fund through the EPF membership portal using their UAN, Universal Account Number. When people move jobs, they can roll over their provident fund account.
Looking for an Expert Guidance?
Get 30 minutes of free consultation
with our company formation experts!
Employee Provident Fund and Miscellaneous Provisions Act,1952 governs EPF. Throughout a career, one may change jobs several times. However, under UAN, the advantage of this program is constantly added.
There isn’t any kind of age limit for the employees to join the EPF. But, employees aged 58 or above cannot be a part of the pension fund.
No, the workers can’t join the EPF by their means. The company they’re employed in must be covered by the 1952’s EPF and MF act.
No, if a worker is qualified, he/she cannot be a part of EPF.