When I was in Class 11, my father took us for an extravagant dinner and bought me a new mobile phone. We also got the house repainted, exchanged our old television for the latest one and my tuition fees were paid in advance. It was like having a few Diwalis together! As an explanation, I only heard the words, "Papa ka PF aaya hai!"
If you belong to a middle-class, salaried family, you must have encountered this sentence at least once in your life. (If you haven't, go check the safe deposit box. You'll find bundles of money and a ghost guarding it. Just kidding.)
Provident Fund, or Employee Provident Fund, is a kind of social safety net which is created by legally-fixed contributions of both the employee and employer. It is a pool of funds that the government guards for you until you need it on an urgent basis, or you retire.
As a young professional with an unending list of things you want to buy or experiences you want to spend money on, PF might seem like that irritating chunk of money that could have been better spent, or maybe, invested in a high-returns promising fund, as opposed to the steady, legally-decided, uniform interest rate that you earn on PF. But it is worth taking an effort to understand all the implications of maintaining a PF and updating yourself with the recent changes in the rules.
How much do you contribute?
12% of your basic salary gets credited from your account to the PF account on a monthly basis.
How much does the employer contribute?
Your employer contributes an equal amount, i.e. 12% of your basic salary, which is distributed between the EPF and the EPS.
How much interest do you earn?
The funds from many employees are pooled together and invested in a trust that earns a steady interest, which is between 8-12%.
What are the tax benefits?
Here's the bait. The amount that your employer contributes towards your EPF is tax-free, and the amount that you contribute is tax-deductible under
Section 80C of the Income Tax Act. To state it more clearly, you don't pay any taxes on this amount, and the EPFO holds this money for you and even gives you a steady interest. There is no risk of losing this money to market fluctuations either.
How to check the amount in your PF fund?
If you don't know the amount accumulated in your PF account, you can log into your account on the EPFO website by using your member ID or your UAN (Universal Account Number) to check the balance. You can obtain an EPF passbook, obtain your UAN card, and in short, manage your EPF account remotely without the hassle of going to an EPFO office.
In 2015, EPFO also launched a mobile application to control your EPF account remotely and easily.
How to get my UAN number?
Your UAN number is readily available with your employer. You can contact him to obtain the same.
When and how can you withdraw PF?
You can withdraw your funds under the following situations:
- If you have quit your job or started freelancing or you are voluntarily employed, you can file a claim on the website and let a period of 2 months pass. Thereafter, you are free to withdraw your PF.
- If you are a woman and you want to buy a house, or an insurance policy or if you are getting married or you want to resume studying, you can withdraw your PF.
Note: If you withdraw your PF before completing 5 years of service, TDS will apply on the withdrawal.
What happens if...
a) I changed my job.
Obtain your UAN and other PF account details from your ex-employer and give them to your new employer to avoid duplication and the hassle of combining it in future.
b) I quit my job and begin a start-up of my own or start freelancing.
Congrats! If you don't need the money immediately, let your funds lie with the EPFO and earn the steady, risk-free interest.
c) I just realised that my account is idle (there has been no activity since more than 3 years/ 36 months.
According to the latest development, an idle PF account will continue to earn interest
even if it is stagnant for more than 3 years. EPFO FTW!
d) My employer refuses to allow me to withdraw my PF, I don't want to contact my past employer get my PF money, or I want to withdraw it on an urgent basis
Realising that obtaining the approval from past employers for filing a claim for withdrawal of PF funds was causing a lot of hassle, the EPFO has changed the system to allow employees to withdraw their money without attestation of the employers.
Moreover, in case of medical emergencies or if you are moving abroad, you can withdraw your funds on an urgent basis without going through the 2-month waiting period.
Tip: It is far easier to withdraw your funds without waiting for the employer's permission if you have linked your Aadhar card to your PF account.
e) I contributed towards the PF for x years, but I want to opt out of it now.
Here's the thing. You can't opt out of a PF scheme once you have started it already. By letting go a part of your in-hand salary, you are building financial stability for the future. Hence, it's okay to manage with less money right now.
If you have any more questions, you can ask us in the comments below. We will try our best to answer them.