Provident Fund (PF) is a crucial savings plan for employees, offering long-term financial security. As per the Employees' Provident Fund Act, both employees and employers contribute 12% of the salary plus dearness allowance, with a portion allocated to the Employee Pension Scheme. The remaining amount accumulates in the PF account, earning an interest rate of 8.10% for 2022-2023. PF contributions help build a retirement corpus, providing stability for post-service years and covering expenses like medical bills or leisure activities. It also serves as an emergency fund, allowing partial or full withdrawals under specific circumstances. Additionally, contributions made to the PF account are tax-exempt under Section 80 (C) of the Indian Income Tax Act, up to ₹1.5 Lakhs (if you’ve opted for the Old Tax Regime). Read this blog to compare the old and new tax regimes.
Here in this blog, we cover an overview of the PF.
According to the Employees' Provident Fund Act, your contribution is capped at 12% of your salary plus the dearness allowance. While your employer has to match this 12% contribution, 8.33% of this amount goes to the Employee Pension Scheme, and the remaining 3.67% goes to your PF account. PF is a part of your CTC (cost to company) and goes towards ensuring retirement benefits.
Here's a list of the top highlights of the Provident Fund scheme:
However, there are some disadvantages of PF in salary. For instance, premature withdrawals of more than ₹50,000 will attract a TDS of 10%. Similarly, exiting before the 5-year service term is completed, will also attract a tax penalty.
Learn more about EPF interest and how to calculate it here.
The Provident Fund (PF) is a powerful savings plan that offers long-term financial security for employees. With contributions from both employees and employers, the PF account accumulates funds that earn an interest rate of 8.10%. This helps build a retirement corpus, providing stability and covering expenses in post-service years. The PF account also serves as an emergency fund, allowing withdrawals under specific circumstances. Additionally, contributions to the PF account are tax-exempt up to ₹1.5 Lakhs under Section 80 (C) of the Indian Income Tax Act. While PF offers numerous benefits, it's important to be aware of certain considerations, such as tax implications for premature withdrawals. Overall, the Provident Fund scheme serves as a gateway to a happy retirement, ensuring financial well-being for employees in the long run.
Regarding PF in salary, you and your employer must contribute 12% of your basic salary and dearness allowance. 8.33% of the employer's contribution goes to EPS, while 3.67% goes to your PF account.
Yes. You can only withdraw the entire PF corpus on retiring or when you're unemployed for over two months. The current age for the same is capped at 58 years. Read more in this blog about withdrawing your EPF contribution.
PF is calculated on your basic salary and dearness allowance. Since private employees don't get D.A., it's based on the base pay amount. The interest on the same is calculated every month but credited to the account at the end of the fiscal year.