Employees’ Provident Fund (EPF) is a mandatory contribution that every company, which has more than 20 employees, is required to deduct from the salary of its employees. In the EPF kitty, the employee contributes 12 percent of the salary while an equal amount is contributed by the employers.
There are ways through which salaried individuals can make the most of the EPF account to ensure a stress-free retired life.
What financial advisors suggest
EPF, also known as PF, includes pension component. Employees can get pension after retirement based on the amount accumulated
“Most of us have generally a career spanning 40 years. So if the PF is deducted and accumulated through the 40 years, one can calculate the compounding effect," said Lakshmi Murthy, CPO, ITM Group of Institutions.
Is it okay to withdraw EPF amount?
It is advisable not to withdraw PF amount till retirement. PF results in a huge corpus at the time of retirement. However, if withdrawn in between, it should be invested in instruments that earn better returns like a house property, land or mutual fund, experts suggest.
"Most of the employees, unfortunately, withdraw PF for marriage in the family and end up with no saving for self at the time of retirement," said Murthy.
With the new regulations, if an employee changes a job, PF need not be withdrawn, it can be carried forward to the new employer. An employee can also track one's accumulation online on the PF portal- epfindia.gov.in.
How to maximize returns on EPF
The Provident Fund (PF) interest rate is decided and notified annually and members do not have a say in this. However, one can increase their contributions to fetch more returns.
"This could be done in two ways – by enhancing the base on which PF is contributed or voluntarily opt for a higher contribution rate," said Tapati Ghose, Partner, Deloitte India.
PF typically is contributed on basic salary. If the basic increases, so does the contribution and in turn, the returns which are computed on the accumulations in the PF account. "Alternatively, a member can choose to contribute at a rate higher than the prescribed rate (of 12 percent)," Ghose added.
Both these would result in enhanced accumulations in the member’s account thereby fetching more returns.
Tax exemption on PF balance withdrawal
Tax exemption on withdrawal of PF balances is available if a member has rendered continuous service for 5 years or more, according to experts.
“Salaried individuals should ensure that all their accounts are tagged under a single UAN so that they meet the continuity of service criterion,” said Ghose of Deloitte India.