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Employee Provident Fund Advantages and Disadvantages (EPF)

by Taxcare4u

EPF has various benefits for both employees and employers, but it also has certain drawbacks. The total impact of EPF will be discussed in this essay.

What is the Employee Provident Fund (EPF) and how does it work?

For a limited kind of businesses, PF registration is required. Employee provident fund is a retirement savings account that salaried employees contribute to. In a nutshell, it is a retirement plan available to all salaried employees. Saving for retirement is the ultimate goal of the salaried employee’s financial journey. And this is where the Employee Provident Fund comes in.

Most employees are first resistant to compelled saving in the majority of circumstances. However, once you’ve gotten used to the bite, it’ll work in your favor. The Employees’ Provident Fund Organization of India manages the Employee Provident Fund. Anyone in charge of a company with more than 20 employees must register with the Employee Provident Fund Organization.

EPF can come in in an emergency or when you’re low on cash and need to borrow money. Some of the EPF’s benefits are listed below.

Benefits from the Provident Fund

Employees of the company get the following benefits after registering under the Employee PF Act.

  • The Employee Pension Scheme (EPF) is organized into two parts: provident fund and employee pension scheme.
  • The subscriber contribution to the Provident Fund is 12 percent of the basic + daily allowance.
  • Employer contributions are split between the Employee Pension Scheme and the Provident Fund Account, with 8.33 percent going to the Employee Pension Scheme and the balance to the Provident Fund Account.
  • The pension is calculated based on the number of years of work and the average wage earned by the person.
  • A retired person receives a lump sum EPS payment in addition to PF.
  • Members who reach the age of 58 and have served for ten years without making any withdrawals are eligible for a pension.
  • Members can take money out of their accounts to meet their financial needs – there is no requirement to reimburse unless the money is misappropriated.
  • The member can settle the account after resigning. The member receives his PF contribution, as well as his employer’s contribution and interest.

Benefits from Insurance

If a company does not have a group insurance plan, the company must pay a monthly payment under the Employee Deposit Linked Insurance Scheme. For many people, this may seem insignificant, but for members of tiny businesses, this sum is sufficient to ensure their family’s livelihood.

Benefits from Pensions

  • Members are entitled to a pension. When a member passes away, his or her family is entitled to a pension.
  • Scheme Certificate: The certificate includes information about the members’ services as well as their families. The certificate is usually given to members who apply for it and retire before they reach the age of 58. This is a better option than Withdrawal Benefit since if a member dies while holding a valid plan certificate, the pension will be paid to his family.

Benefits of Withdrawal

  • A pension account can be withdrawn by a member who is not eligible for one.
  • This sum is calculated solely on the basis of I last average wage and (ii) service (Not based on the actual amount available in Pension Fund Account)
  • Even if the employer does not contribute to the Pension Fund, EPFO guarantees members a pension.

Disadvantages

Despite the benefits and opportunities, most Employee Provident Fund contributors fall short of the Rs 1 crore mark. When employees in the ET Wealth survey moved jobs, more than a third of them withdrew their Provident Fund balance. Withdrawing money from the Provident Fund has two disadvantages.

  • The member takes a lump sum withdrawal, which is quickly depleted by discretionary spending, and the member’s retirement funds are wiped out.
  • If a person withdraws money from his Provident Fund before the five-year period has passed, the money becomes taxable.

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