The most important tool in the retirement planning arsenal is the Employee Provident Fund. When you stay long-term, you can not only meet your retirement goals, but also exceed them because:
Has 100% tax-free interest
Interest works on compound growth
Both factors ensure that, at maturity, the FP provides substantial savings. Below are all the benefits that an EPF offers to a person and their loved ones in times of need, emergency or after retirement.
What are the merits of the Provident Fund?
The insurance plan linked to the employee deposit establishes that a company must contribute 0.5% of the basic monthly salary as the insurance coverage premium. The EDLI applies 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 median salary for the last year (up to Rs 6,500 per month), resulting in Rs 1.30,000.
The total amount in the PF account (up to Rs 50,000) plus 40% of the balance amount.
For small business workers, the amount EDLI produces is sometimes more than enough to survive.
Two-element included EPF:
Employee pension plan
The latter was introduced in 1995. While the employee’s contribution, which is 12% of basic salary plus DA, goes entirely to PF, the employer’s contribution is divided. Of the 12% that the company has to cede, 8.33% is deposited in EPS. This is capped at 541 rupees. The balance 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 EPS, over the years, builds a substantial corpus as a pension. Due to a provision of the law, one can receive the EPS together with the PF in a lump sum. To collect a pension, one must:
Be 58 or older
He completed a decade of service with no retirements from him.
In case an employee retires before the age of fifty-eight, he can still collect the pension for a reduced amount. In addition, in the event of the death of a worker, the family is entitled to a pension provided that the established conditions are met.
It should be noted that there is a limit to the maximum pension amount for each month – 3,500 rupees. There is a simple technique to circumvent this limit if the employer uses the worker’s actual salary as a contribution instead of the specified Rs 6,500 per month.
- Singular situations
One of the main supports that a person obtains by registering PF online is a financial cushion during difficult or extraordinary times. When an emergency arises and there are no saved funds or help available, it can be withdrawn from the EPF. To immerse yourself in the corpus, some conditions must be met and a specific boundary must be crossed. Some examples of when EPD can be helpful are:
- A medical emergency:
For any major surgical operation or conditions such as cancer, tuberculosis, leprosy, heart disease, mental problems, and paralysis, a person can withdraw money from EPS. The amount that can be taken must be less than the following two:
6 times the person’s salary
Full contribution made to the EPF to date
The withdrawn fund can be used to treat a spouse, children, autonomous parents or dependents.
- Any life goal
A parent plans the education and marriage of a child, a person might want to provide his brother with a higher education, or a person might want to study more. These are all life goals that can be financially supported through EPF. An employee can withdraw approximately half of the contribution for the marriage or education of a child, self or a sibling.
This can be done up to three times during its useful life. The only criteria that must be met are:
Valid document proving marriage or fees payable to the university.
Spent seven years in service
- House of your dreams
When an employee wants to build a new house, repair or maintain an old one, he can use the money in EPF. It can also be used for the repayment of mortgage loans. The association specifies the contingencies that must be met by it. The usual few are:
For repayment of mortgage loans, EPF’s three-year salaries can be used as long as 10 years of service have been completed.
For home repair or modification, a salary equivalent to twelve months can be withdrawn. This requires an existing house and can only be done once. For the alteration, the person must complete 5 years of service and for the repair, 10 years.
To buy a new home, an employee only needs to work for five years. The amount withdrawn can be used to purchase a new house or land and the construction of a new house. If land is bought, the total that can be taken out is 24 months of salary. For a house, the amount can be 36 months of salary. This amount can only be collected once in a lifetime. The house or parcel may be in the name of the employee, the spouse or as a 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 due to natural calamities
Equipment purchases by the physically disabled
If the person changes jobs and remains without a profession for more than two months
The designation of a family member to receive the EPF corpus in the event of the employee’s death constitutes an excellent safety net.