A Provident Fund is a form of social safety net into which workers must contribute a portion of their salaries and employers must contribute on behalf of their workers. The money in the fund is then paid out to retirees or in some cases to the disabled who cannot work. Employee Provident Fund is one of the main platforms of savings in India for nearly all people working in Government & Public Sector Organizations. It is important for every working individual to understand the importance of EPF and how it can benefit him or her.
Every establishment in which twenty or more persons are employed has to apply for Provident Fund Registration within One month from the date of applicability. All employees are eligible to become a member of provident Fund from the date of joining the establishment. Employee Provident Fund is a very important tool of retirement planning. The tax free interest (compounding) and the maturity ensures a good growth of your money. If continued for a very long term, it can help immensely in meeting ones retirement goal.
Every employer to which Provident fund act applies has to deduct and deposit to the central government, the provident fund deducted along with Employer Share, for those employee which basic wage plus dearness allowance is equal or below to Rs 15,000/-. Under the EPF Scheme both the employees and employer contribute equally to the Employee Provident fund at the rate of 12% of the basic wages, dearness allowance and retaining allowance, if any, payable to employees per month. Employer’s contribution of 12% of basic salary is totally deposited in provident fund account whereas out of Employee’s contribution of 12%, 3.67% is contributed to provident fund & 8.33% is deposited in Pension scheme.
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