Provident funds (PF) schemes are aimed at providing an opportunity for salaried employees to create a retirement corpus with regular investments.
With these investments, the employees can get a lump-sum amount at the time of retirement. The main objective behind the provident fund schemes is to provide financial security to employees after they retire from the service.
Under the PF schemes, the employees contribute a small amount of their income every month, and the total amount turns into a retirement corpus while a portion of the total savings can be availed as a pension.
There are several types of provident fund schemes, namely, employees’ provident fund (EPF), public provident fund (PPF), and general provident fund (GPF).
Employees Provident Fund (EPF)
EPF is a provident fund scheme for salaried employees other than government employees, operated by the Employees Provident Organisation (EPFO), the Central government’s retirement fund body.
Every organisation or corporate entity with more than 20 employees must provide retirement benefits to its workers per the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.
According to the existing EPFO rules, an employee contributes 12 per cent of the basic salary and dearness allowance, up to a maximum of Rs 15,000, every month, and the employer contributes an equal amount (12 per cent).
Out of the employer’s contribution, 8.33 per cent goes to the Employee’s Pension Scheme (EPS), while the rest 3.67 per cent is invested in EPF. The EPF interest rate for 2022-23 is 8.10 per cent.
Employees can permanently close their EPF account after retiring and transfer it while switching jobs.
A partial withdrawal is allowed from an EPF account for reasons such as repayment of the loan, buying or constructing a house, and medical treatment of family members, among others.
Public Provident Fund (PPF)
PPF is not a mandatory provident fund scheme, and a PPF account can be opened by an Indian resident, both salaried and non-salaried.
A person can deposit a minimum of Rs 500 and a maximum of Rs 1,50,000 in their PPF account in a financial year.
Unlike EPF, a PPF account matures after 15 years, which can be extended further in blocks of five years. Partial withdrawal can be made every year starting from the seventh financial year of opening the PPF account.
The interest rate for PPF is decided by the Central government every quarter. The current PPF interest rate is 7.1 per cent.
General Provident Fund (GPF)
The General Provident Fund (GPF) scheme is available only for government employees.
All temporary government servants who have served continuously for one year, all permanent employees, and all re-employed pensioners (other than those eligible for admission to the contributory provident fund) can open a GPF account.
One has to contribute a minimum of 6 per cent of the monthly salary to the GPF account. The GPF interest rate for the October-December quarter of 2022 is 7.1 per cent.
The GPF scheme is managed by the Department of Pension and Pensioners’ Welfare under the Ministry of Personnel, Public Grievances, and Pensions.
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