The most important tool in the retirement planning arsenal is the Employee Provident Fund. When you stick with it for the long term, you can not only meet your retirement goals but exceed them because:
- It has 100% tax-free interest
- Works of interest on compound growth
Both factors ensure that at maturity, PF provides substantial savings. Illustrated below are all the advantages that an EPF offers a person and their loved ones in times of need, emergency or after retirement.
What are the merits of the Provident Fund?
- Sure
The Employee Deposit Linked Insurance Scheme requires a company to contribute 0.5% of the basic monthly salary as a premium for insurance coverage. EDLI is applicable when the organization does not offer its employees a group insurance plan. The employer contribution is capped at Rs 6,500. In addition, the amount of insurance coverage is the greater of the following two:
- Twenty times the average salary for the last year (up to Rs 6,500 per month), which works out to Rs 130,000.
- The full amount in the PF account (up to Rs 50,000) plus 40% of the balance amount.
For workers in small businesses, the amount that EDLI produces is sometimes more than enough to survive.
- Pension
EPF composed of two elements:
- provident fund
- Employee pension scheme
The latter was introduced in 1995. While the employee contribution, which is 12% of base salary plus DA, goes entirely to PF, the employer contribution is split. Of the 12% that the company has to give, 8.33% is deposited in the EPS. This is capped at Rs.541. The balance amount is added to the PF.
When a person retires, they receive a pension that depends on:
- The average salary they had in the year before retirement.
- The number of years they have worked.
What this means is that the contribution to the EPS, over the years, builds a substantial corpus as a pension. Due to a provision of the law, EPS can be received along with PF in a lump sum. To collect a pension you must:
- Be 58 years or older
- Completed a decade of service without retirement from it
In the event that an employee retires before reaching the age of fifty-eight, they can still collect the pension only for a reduced amount. In addition, in the event of the death of a worker, the family is entitled to the pension as long as the established conditions are met.
It should be noted that there is a limit to the maximum amount of the pension for each month: Rs 3,500. There is a simple technique to circumvent this limit if the employer uses the actual salary of the worker for the contribution instead of the specified Rs 6,500 per month.
- Unique Situations
One of the main supports a person gains through online FP registration is a financial cushion during difficult or extraordinary times. When an emergency arises and there are no funds saved or help available, you can withdraw from the EPF. To dive into the corpus, some conditions must be met and a specific boundary crossed. Some examples of when EPD can be useful are:
- A medical emergency:
For any major surgical operations or conditions like cancer, tuberculosis, leprosy, heart disease, mental problems, and paralysis, a person can withdraw money from the EPS. The amount that can be taken has to be less of the following two:
- 6 times the salary of the person
- Total contribution made to the EPF to date
The withdrawn fund can be used for the treatment of the spouse, children, oneself or dependent parents.
- any life goal
A father plans for a son’s education and marriage, a person might want to give his brother a higher education, or a person might want to study more. These are all life goals that are eligible for financial assistance through EPF. An employee can withdraw approximately half of a child’s marriage or education contribution, from himself or from a sibling.
This can be done up to three times in its lifetime. The only criteria that must be met are:
- Valid document proving marriage or fee payable to the university
- He spent seven years in the service
- dream house
When an employee wants to build a new house, repair or maintain an old one, they can use the money in EPF. It may also be appropriate for the payment of mortgage loans. The association specifies the contingencies that must be met for it. The few common ones are:
- For the payment of the housing loan, the salaries of three years of the EPF can be used as long as 10 years of services have been completed.
- For home repair or modification, twelve months’ worth of wages can be withdrawn. This requires an existing house and can only be done once. For alteration, the person has to fulfill 5 years of service and for repair 10 years.
- To buy a new house, an employee only needs to work for five years. The amount withdrawn can be used to buy a new house or land and the construction of a new home. If a piece of land is purchased, the total that can be withdrawn is 24 months of salary. For a house, the amount can be 36 months of salary. This amount can be collected only once in a lifetime. The house or lot can be in the name of the employees, in the name of the spouse or in joint ownership.
The advantages of EPF are not limited to those explained above. There are a few other circumstances in which it can be used, such as:
- Damage from natural calamities
- Purchase of equipment by physically disabled
- If the person changes jobs and remains without a profession for more than two months
Nominating a family member to receive the EPF corpus in the event of the employee’s death is an excellent safety net.
