Provident fund or PF as it is usually referred to, is nothing but a contributory pension fund of sorts for employees – generally in the organized sector. The monies accrued in an employee’s account created under the scheme can be utilized by an employee after exiting an organization. The amount accrued is available to the employee 2 months after he exits a company to meet his/her financial needs when he/she is unemployed or retired.
Employees contribute a part of their income each month towards the PF along with employers’ share which is available in a lump sum at the time of retirement/leaving a company.
The Fund has been setup and is regulated in accordance with the The Employees’ Provident Funds and Miscellaneous Provisions Act of 1952 a legislation by the Government of India.
Although, some of you may be aware about some or all of the aspects of Provident Funds, it’s my endeavor to provide you some lesser known facts about the provident fund that you may not know!
1. Employees can avail the benefit of pension under EPF
Are you aware that there is a vital element known as EPS (Employee Pension Scheme) in a PF? Yes, the EPF portion is for your provident fund, and EPS is for the pension. If you are not yet receiving the pension component in your PF account, ask your employer / PF office today!
2. You can nominate someone else for the EPF
Under the PF scheme you can also nominate someone else for to receive your PF and pension accruals in the event of your demise. A nominated person will receive an intimation to this effect post the death of the member. In case there is no nomination, accruals will be distributed according to the law laid down in the scheme.
3. An employee can invest more money in PF (VPF)
As of now, an employee can contribute only 12% of his salary towards the PF and in turn the Employer will contribute and equivalent amount to the employee’s account. But, with the help of a Voluntary Provident Fund or the VPF, the employee may top up his account for the future. Under this arrangement, the member will earn will earn interest on the extra amount deposited though there will no equivalent contribution from the Employer on this portion.
4. EPF withdrawal on job change is illegal
There is a mandatory waiting period of 2 months post leaving a job to ensure that what is intended to cater to employee needs post retirement is not drawn when one is employable or employed. Many people have a misconception that it’s fine and legal to withdraw PF money after changing a job. Ordinarily this waiting period helps prevent that misuse as the new employer is required to file the member’s number with the PF authorities soon after the employee’s joining if the establishment is covered under the PF Scheme.
5. An employee can withdraw PF money on special occasions
An employee can withdraw a part of his/her PF money on special occasions such as:
– His or her own marriage or education, siblings, and children – the member must have completed at least 7 years of service after which 50% of the amount accrued is allowed for withdrawal. Application along with wedding invitation card is required to avail this facility.
– Medical treatment for self or spouse – maximum withdrawal allowed is 6 months of salary, hospitalization proof (one month) is needed along with one-month leave certificate from an employer
– Home loan repayment – should have completed at least 10 years of service, PF money that’s allowed for withdrawal is up to 36 times of the salary.
– Home repairs and alterations – a minimum service of 5 years (10 years for repairs) after the house was bought or built, allowed once – one can withdraw up to 12 times the income
The Bottom Line
The PF is wonderful scheme in which to park your funds regularly while you are employed to meet your needs post retirement or loss of employment. It also helps save taxes as investments reduce the tax burden up to a point. Besides the PF, there are many investment avenues for the salaried.
By Ruchi Gupta