Do you know how important it is to be idle on the path to financial freedom - 5

What is Employees' Provident Fund?

The central government has made it mandatory for all salaried employees to invest a fixed amount in the Employees' Provident Fund (EPF) according to their income or a fixed amount. This scheme is in force with the social objective of making it mandatory for all employees to contribute money for retirement expenses. In this scheme, 12% of a person's basic salary and gratuity will be deducted as Employees' Provident Fund. Or, taking Rs. 15,000 as the basic salary, 12% of it i.e. Rs. 1,800 will be deducted from the salary as PF. The same amount will be deducted by the company and credited to the employee's account.

If a person's basic salary and gratuity are Rs. 30,000, then Rs. 2,500 or Rs. 1,800 can be deducted from the employee's salary. The company will deduct Rs. Let us assume that Rs. 2,500 is deducted from the employee's salary and the same amount is paid into his account. . 8.33% of the amount paid by the company will be credited to the employee's EPF account. A maximum of Rs. 1,250 will be credited to the pension scheme. And that too only if the basic salary is below Rs. 15,000 at the time of joining the job. The entire amount deducted from the employee's account will be credited to his employee's provident fund. In the above example, Rs. 3,750 will be credited to the EPF account and Rs. 1,250 to the employee's pension scheme. If the initial basic salary is more than Rs. 15,000, the entire PF amount will be credited to the member's account.

Among the various government-linked investment schemes in the country, the Employee Provident Fund is the scheme that offers the highest interest income. As per the current status, the interest rate for the Employee Provident Fund has been fixed at 8.25% per annum.

Moreover, the Employees Provident Fund has a special feature that no other scheme has. Even if a person goes bankrupt and all his assets are acquired, no one can lay a hand on his Employees Provident Fund. Since this investment is managed exclusively by the Central Government for his retirement, the Employees Provident Fund cannot be taken as collateral for any loan.

If a person has been in service for 30 years, a considerable amount will have accumulated in his Employees Provident Fund and Employees Pension Schemes. You can use it to meet some of the retirement expenses. You may be confused as to why we are referring to an idle Vadivelu comedy as an Employees Provident Fund Scheme.

The Central Government has placed various restrictions on the withdrawal of money from the Employees Provident Fund. A person can withdraw money from the Employees Provident Fund for the following reasons.

 

1) One can withdraw six months of basic salary for medical reasons.

2) Marriage - Up to 50% of the accumulated employee's deposit can be withdrawn for the marriage of the employee, his siblings and children. For this, a minimum of 7 years of service is required.

3) Higher education - Up to 50% of the accumulated employee's deposit can be withdrawn for the education of the employee or his children. For this, a minimum of 7 years of service is required.

4) For the purchase of a house - You can get 24 times the basic salary. For this, a minimum of 5 years of service is required.

5) For the purchase / construction of a house - You can get 36 times the basic salary. For this, a minimum of five years of service is required.

6) For the repayment of a home loan - You can get 36 times the basic salary. For this, a minimum of 10 years of service is required.

7) For the renovation of a house - You can get 12 times the basic salary. For this, a minimum of five years of service is required.

8) On completion of 54 years of age - one can withdraw up to 90% of the money.

9) Termination of employment - one can withdraw 75% of the money at the end of one month of termination of employment and 100% of the money at the end of 2 months.

The Employees Provident Fund is designed for one's retirement life. But most people put their hands on their savings for the various reasons mentioned above. The reason for this is lack of proper planning.

Investing separately for unexpected emergencies and investing separately for each investment goal will protect the Employees Provident Fund. You can easily earn money during the period when your body is strong. Employees Provident Fund is very important for a comfortable retirement life in old age. If you do not withdraw this savings for any reason, you can add a large part of the required retirement savings.

It is true that Vadivelu said that being idle is not easy. Most employees withdraw a significant part of this savings in the middle. That causes them great financial problems during retirement. To avoid this, you can achieve financial freedom only by following other proper investment plans and adding to the Employees Provident Fund with a long-term perspective.

Along with the Employees' Provident Fund, workers can invest additional amount of their choice through the Voluntary Provident Fund (VPF). One can ask to have 12% of one's basic salary and the remaining 88% of the salary i.e. the entire salary as PF.

 

There is no income tax on the interest income received in the Employees' Provident Fund. We can get the double benefit of additional interest income and tax exemption. Income from most of the safe government investments has to be taxed. Schemes like bank deposits, bonds etc. have to be taxed according to the income brackets. A person in the 30% tax bracket will get an income of 6% after tax deduction.

On the other hand, income from the Employees' Provident Fund is completely tax-free. After the Union Budget 2021, those working in private companies will be able to contribute Rs. 2.5 lakh per year in the Employees' Provident Fund, and those working in government offices will be able to contribute Rs. If you invest more than 5 lakhs in the Employees Provident Fund, you will have to pay tax only on the income received from it. However, 99% of people will not be affected by this.

Public Provident Fund..!

Unemployed farmers, businessmen, etc. can invest through the Public Provident Fund (PPF). This scheme is being run by the government with the aim of making the retirement package available to everyone.

Along with this, you will get cash benefits through Gratuity when you retire from work. By saving the holidays given every year, you will get additional benefits at the time of retirement. If you use all the benefits properly, you can enjoy a peaceful retirement life.