Benefits of EPF
When a person joins an Organization, it may be Private or Government, it must be mandatory for the employer to ensure his/her EPF account to be created and contribution to be deducted after 30 days of working. Why it is so important for the employer to EPF contribution of its employees.
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Why an employee deduct some amount from his/her salary. This is called PF Contribution. He may save that amount in other sources. What are real benefits of EPF contributions in monthly basis for a long period of time. Why an employee should not think about other sources of Investment. Today in this article I will take you towards the answer of these questions which are running in your mind.
SUMMARY
- Interest rate more than FD
- Money compounds every year.
- Profit of Insurance & Pension.
- Responsibility soldered by employer for Fund, deposit, inspection, extra charges.
- UAN links all EPF account in one basket for easy access.
- Your fund secured for long run.
- Advantages of Partial withdrawal & loan in emergency.
1. Habit of Saving:
Your saving account get on multiplying day by day at compounding rate.
Generally, when salary credited to our bank account, we think to save it in various ways and try to utilise these fund in return work hard for us.
However practically it does not happen as we planned. We have many other commitments that came in front of our eye. Those expenses drain out our money from our wallet. In the end of month, we end of no saving. But by opting EPF it automatically deducted from salary before salary credited to us in our hand. It is done in autopilot mode till our retirement.
Interest rate of EPF is generally more than Saving bank account.
The main plus point is EPF carries Compound interest every year which laid a great return at the time of maturity when an employee retires for his/her job.
Note: For FY 2023-24 ,interest rate is 8.15%.
2. 50% free amount:
Employer contributes the same amount as we are contributing every month.
As per EPF rule, 12% of basic salary shall be paid by the employee and 12 % of basic salary shall be paid by the employer too. For an employee the 12% is free.
From the employer part of contribution 8.33% goes to Employee Pension scheme & 3.67% goes to EPF. Hence ultimately, we are enjoying 24% of our basic salary by contributing 12% each month.
Generally pension benefits and insurance benefits are free for a employee.
3.Employee Pension Scheme (retirement benefits of EPF)
Pension Calculation Formula: Pensionable Salary* No. of years of Service/70
EPS is a scheme of under EPF act increase helpfulness to employee . As per the scheme 8.33 % of basic salary of the employee is deposited by the employer.
An employee need to spent 10 years of continuous service to eligible for pension after retirement.
Earlier 10 years of continuous service is considered for eligibility of EPS, however now other employer service is also considered for eligibility.
Monthly pension as social security will be given to employee after superannuation .
50% of the pension amount will be also given to the family members after the death of Pensioner.
Grievance Redressal Committee under ID Act 1947
4.Death Insurance coverage:
Employee Depository Linked Insurance Maximum EDLI amount is 7 Lakh
EDLI Calculation Formula:= (35 X Basic Average Salary or Maximum 15,000) + (50 % of Average Balance in EPF Account or Maximum 1.75 Lakhs)
This is an additional benefit to employee. EDLI is a free insurance provision for the employee. The profit of EPF for employee is that contribution is given by the Employer. 0.5% of the basic salary & dearness allowance of the employee is contributed by the employer every month as EDLI contribution fund.
After the demise of the EPF member a certain amount of money is given to the dependent or Legal heir as per nominee declared by employee.
5.Savings in Income Tax:
EPF contribution is coming under Sec-80C of the Income Tax
An employee is enjoying Income Tax benefits by contributing in Employees Provident Fund. The sum amount of money is contributing in the Provident Fund in a year is the money that he/she is saving under Sec-80C of Income tax.
The contribution shared by employee for EPF (Employee Provident Fund ) and VPF Voluntary Provident Fund are auto populated in Income Tax. The same amount profits to employee as Tax benefits.
6.Magic of Compound Interest:
The rate of Interest on EPF money is compounded time to time.
Every month the deposited money gets compounded, and the next month interest money added in the principal amount and interest levied on the total sum. This effect amplify the value & results into a big corpus in long run. An EPF member draws an appreciable corpus amount at the time of retirement.
7.Safety & Security:
Your fund is purely safe & secure as it is run by Government of India. An employee can trust to this organization of Government.
Guaranteed returns will be expected at the time of retirement irrespective of Stock Market fluctuation.
EPFO has a grievance system where all your queries are answered with-in 20-30 days by the EPFO officials. This shows easy redressal of compliance.
8.Easy withdrawal System :
An employee can withdraw partially via online mode easily from his\her fund by log in into UAN.
All your money will be saved in a good hand. There is less possibility of fraud and theft because the fund is completely under the direct control of Government of India.
Note: Please take caution about early withdrawal penalty.
9.Interest Free Loan:
Interest free loan facility can be opted from your EPF account by choosing Loan withdrawal for the causes like marriage, house construction & repairing, education, medical emergency etc.
Employee can choose to take advance as per the amount available in the PF account. After that employee can choose to refund back by depositing in PF account or can deduct from EPF balance.
10.EPF is the duty of Employer:
All the hassle are taken by the Employer.
All the calculation, working, Bank transactions, challan deposit are done the Employer, moreover the administrative charges are added extra also given the employer. Audit, inspection from EPF authority also deal by employer.
11.No middleman Intervention:
No exit load fees while withdrawing money, No brokerage charges, no maintenance Charges are deducted.
Like a demat account, Mutual Fund, Bank account a person needs to loose money in the name of Exit Load charges, account opening fees, Fund maintenance charges, SMS charges, Brokerage charges etc. However, in EPF no such expenses imposed on you. You can directly withdraw your accumulated money simply by applying via online mode.
12.VPF: Voluntary Provident Fund
An employee can contribute to PF more than his/her statutory Contribution that is 12 % of Basic+ Dearness allowance on voluntary basis. That is called VPF. The employee may choose to extra 10 % or 20 % of his/her Basic+DA on monthly Basis subject to the limit of 70%
It will strengthen to increase a big size of the corpus & get more amount of interest to compound the money in the long run.
Disadvantage of EPF
Not linked to Stock Market.
- This is the era of Stock Market where young employees also invest in Equity, Mutual Fund, Crypto Currency etc. Though these are carrying risk however provide a good return, we can say more return in comparison to EPF.
- Every year rate of Interest rate is reducing. Inception of EPF the rate interest was seen as 12% now it is reduced to 8%.
- When inflation is growing in contrast to that the rate of Interest is diminishing.
- EPF has limited investment options in comparison to other investment options.
Benefits of EPF Higher Pension scheme
- Employee will paid higher pension after superannuation.
- Supreme court has ordered that higher basic pay to be considered for Pension Calculation.
- Dependents of employee will be getting pension after his/her death.
- Certain amount money may be adjusted from PF fund to calculate pension Fund.
Benefits of EPF after death
- Premium of the Insurance is paid by employer. It is a profit of EPF for employee.
- EDLI scheme of EPF provides financial assistance to employees Family.
- Insurance benefits to Employees nominee after his/her death.
- Maximum 7 Lakhs can be rewarded to nominee.
- EDLI can be claimed by online mode.
Benefits of EPF Pension scheme
- A recurring income after retirement for employee well-being. This is one more advantage of EPF.
- A part of employer contribution allocated to Pension Fund.
- 8.33% of basic pay goes to Pension Fundfor sustenance of employee after retirement.
- Earlier ceiling of basic wages was 15000,now it is increased to actual basic pay.
- Eligibility of Pension is 10 years of continuous service.
- Pension account also transferred to one organization to another like EPF for convenience of employee.
Benefits of EPFO in India
- EPFO secures all accounts of EPF members.
- It is a Government body controlled by Central Government body.
- It audits employer time to time to restrict fraud and money laundering.
- It tracks contribution remittance of both employee and Employer.
- It controls EPF scheme, EPS schemes & EDLI scheme.
- It ensures all the data of EPF members.
- It uses 0.5% of employer contribution to run the official activity.
Benefits of EPF accounts
- EPF accounts helps to identify establishment ,PF office state, PF office area, PF number, Pension Number etc.
- PF amounts can be transferred from one account to another account after changing the Organisation.
- All PF accounts are linked to UAN for safe and Hassell free service.
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