Provident fund is the go-to investment for the retirement plans in India. It has fulfilled the dreams of many employees at their retirement age. Nearly, All employees ranging from government, private, and public sector relies on it. Since it takes away a part of your in-hand salary, why should you consider it?
According to EFPO guidelines, a person earning less than ₹15000 has to enroll in EPF necessarily. But you might be wondering if you are earning above ₹15000, it is beneficial to invest in the EPF scheme. So, in this article, we will have a detailed discussion on this query. Is it beneficial for employees who draw salary above Rs 15001/- to become a member of the Provident Fund?
EPF Contributions For The Employees
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An employee pays about 12% of the basic pay as their contribution to your EPF account. This contribution is supplemented by the employer’s contribution which is the same amount of percentage as yours. However, you receive only a part of it directly into your account. However, the percentage contribution might change to 10% depending upon the company.
Is It Beneficial For Employees Who Draw Salary Above Rs 15001/- To Become A Member Of The Provident Fund?
Yes, without a doubt. It is beneficial for all employees. Whether they earn above or below the ₹15000 marks. The possible explanation to it as follows:
1. Firstly, the amount that you earn from the PF account is completely tax-free. Also, with years of service, the amount gets huge. This amount is tax-free, and this can save you many bucks. But this happens only when you withdraw your contribution after 5 years of service. Else you will be liable to 10% tax of the EPF money.
2. Secondly, it ensures financial safety in later years of life. When you grow old, you might not be able to work. With the provident funds, you can enjoy later life without worrying about the money. You can also fulfill your dreams of buying a home etc.
3. With continuous service, the interest calculating process increases the investments in many folds. The interest that you earn on the total balance of the EPF account is enormous. Nearly no other investment scheme can guarantee that much return with such good security.
4. Lastly, the premature partial withdrawal in EPF allows partial withdrawal of money to fulfill various responsibilities that an employee might face. This might include purposes like higher education, wedding, renovating a property, and many more.
PF Interest Calculation
It is a compound interest decided every year by the government. The interest rate currently happens to be 8.50% in 2020. It might go up and down by value around 30% (maximum), but it always remains above 8.40%. This interest is applied to your account balance on the 1st of April every year. The previous account balance + the current year contributions make up the amount over which the interest is calculated. So, the new account balance will become total balance+ interest on that total balance.
What Are Provident Funds?
Let’s begin by throwing some light on what is Provident fund. It is a retirement fund that employees earn while working continuously for years. Every company having more than 20 employees is liable to opt for EPF service for its employees. PF contribution is a part of your basic pay.
Your employer also contributes to it. It is an employee benefits scheme. It provides facilities to an organization’s employees about medical assistance, retirement, education of children, insurance support, and housing. They are developed to create financial security for the employees in alert stages of life. Moreover, you earn a whopping interest of 8.5% on balance.
Final Talk
For ages, EPF funds are regarded as torchbearers for employees’ financial security. It has helped many employees to fulfill their responsibilities with dignity. You might think that if you earn above ₹15000, you cannot contribute to EPF. But with the benefits and interest earned, the same is hard to resist. In every aspect, the EPF scheme is beneficial. Whether you earn in lakhs, always consider having an EPF account for your retirement life.
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