Saturday, January 9, 2010

EPF - Employee Provident Fund

Starting from Today, there will be a series of post that will cover different Tax Saving Instruments covered under Sec 80C.

This is the first post of the series and covers EPF.

1. What is EPF?
EPF stands for Employees Provident Fund. It is a mandatory form of saving. Employee and the employer, both have to contribute to this fund. 12% is the minimum that needs to be added to it and employer has to match till this amount. It is of two types:

  • Provident Fund (PF) - This is the mandatory part of EPF. It is applicable to all the companies that have more then 20 employees. If you work in any of such companies, 12% of your basic pay will get automatically added to PF and employer has to match this amount.

  • Voluntary Provident Fund (VPF) - Any other contribution to PF over and above 12% mandated amount is considered as VPF. Company is not liable to match this amount. Maximum contribution allowed towards VPF is 100% of Basic + DA (Dearness Allowance).

    2. What is interest rate of EPF?
    Interest rate for PF accounts is fixed by Central Government every year in March / April.

    3. What is the lock in Period?
    Lock in period is till you get retired. In general, till you turn 55, your money will be locked in PF.

    4. How to get the money back?
    Full amount can be withdrawn in case of:
  • Retiring after attaining the age of 55.
  • Retiring on account of disability (permanent and total).
  • Migration from India.
  • In case of downsizing.

    90% of it can be availed after attaining age of 54 or within one year before actual retirement, whichever is later.

    Various loans can also be availed against PF.

    When shifting the jobs, PF balance can be transferred.

    5. Is interest accrued on savings is Taxed?
    No income tax will be applicable on money withdrawn at the time of retirement. So, in a way interest is not taxed.

    Further Readings:
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