Regardless of the time period, all children eagerly wait for the arrival of summer vacations and have plans and dreams of all the fun they will have with their friends. As we age and progress through the education system, we plan for our college and higher education, which leads to thoughts of our career. As we near the end of our college days, we start planning for our careers, so that we can have a bright future. After settling down in the career of our choice, we plan for marriage, followed by plans of our own family. Once we reach this stage in life, the thought to eventually cross our minds, is securing the future of our family. For salaried individuals working in the private sector, the Employee Provident Fund (EPF) is a popular investment scheme with many benefits other than just tax saving.
Benefits of EPF
As the EPF installments are automatically deducted from your salary, no extra effort needs to be taken to adopt this popular investment scheme, with the following benefits:
Tax Free – For the funds in your EPF account, the interest earned is tax free. Also, the withdrawals at the time of maturity are also tax free, except if prematurely withdrawn (before 5 year continuous service). While employer’s contribution to your EPF is tax exempt you can also avail of tax deductions u/s 80c towards your own monthly contributions.
Long Term Investment – Offers you extra financial security as the scheme incentivizes its account holders to not withdraw funds prematurely
Pension Scheme – Also used as a pension plan, as 8.33% of the employers 12% contribution to Provident Fund is towards the pension scheme (Employee Pension Scheme(EPS))
Ease of Access – With Aadhaar linked to UAN, if the employee were to change jobs, transferring your account is now done automatically with the submission of Form 13.
Insurance Benefit – In the absence of group life insurance, the employer must contribute to 0.5% of basic monthly pay towards life insurance. While, this may not seem like much, for many it will help their families transition through the difficult phase.
Special Extra Benefits – In addition to financial security and tax saving benefits, you can use the funds in your EPF account on the following occasions, if needed:
Medical – No time limit for minimum contribution.
Housing – after contributing to your account for three years you can withdraw the funds for purchasing or construction of a house/flat. To use the PF funds for renovations, contributions to PF must be made for minimum five years.
Marriage/Education – After 7 years of contribution, 50% can be withdrawn up to maximum of three times.
Loss of Income – If for any reason the person is no longer working, then the funds can be used to supplement income till the person is working again.
Death – The listed beneficiary will get the accumulated funds in case of account holder’s death.
One of the easiest and safest investments to secure your future is EPF. Most companies automatically start a PF account on your behalf when you join, so all you have to do is continue working while your monthly contributions create a nice sizable bulk of money, which will help you either during your retirement years or for any emergency/special situations in life. To know how to maximize your tax savings, consult with your personal tax expert at H&R Block India today.
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Madhuri is a tax expert at H&R Block (India) with over a decade of professional experience. Having co-authored a book on economics for the ICAI exam, she now enjoys writing about tax-related topics in a simple and easy manner. Outside of work, Madhuri is passionate about teaching students who are appearing for professional exams.