The Provident Fund (PF) or Public Provident Fund (PPF) is a popular option for many people looking for tax breaks and long-term financial security. Besides that, PPF is a safe investment with government backing, and deciding between the old and new tax regimes determines the legal tax benefits available. So, in this article we will tell you about What Is Provident Fund, Its benefits and how to calculate it.
What Exactly Is a PF?
The Provident Fund (PF) is an employee savings program. Employees and their employers both contribute to this fund on a regular basis to ensure financial security after retirement. In fact, a portion of the employee’s salary, along with the employer’s contribution, is deposited into the PF account, where it grows over time with added interest. After all, you can use it for emergencies, education, or special needs like purchasing a home after retirement.
In India, there are 2 types of provident funds: the Employees’ Provident Fund (EPF) for employees in the organized sector and the Public Provident Fund (PPF) for all employees.
PF Contribution Advantages
- Retirement Savings: By acting as a retirement savings fund, contributions to the Provident Fund (PF) guarantee financial stability as one ages.
- Employer Contribution: Companies boost the overall savings pool by making contributions to the PF account.
- Tax Advantages: Both employee and employer contributions to the EPF are tax deductible under Section 80C of the Income Tax Act.
- Compound Interest: PF accounts earn compound interest, which aids in the long-term growth of savings.
- Loan Facility: Members can borrow against their PF balance for purposes such as home purchases, education, or medical emergencies.
- Early Withdrawals: For certain needs, such as marriage, purchasing a home, or receiving medical care, partial withdrawals are permitted.
- Nomination Facility: In the event of a member’s passing, the member may designate family members to receive the entire corpus of PF.
- Transferable: Suppose if you change jobs for any reason, you can move your PF accounts to other companies.
- Post-Retirement Income: Following retirement, members may elect to receive a pension from the Employees’ Pension Scheme (EPS).
How To Calculate Provident Fund
Step 1: Enter your current age, retirement age, salary as it is now, and anticipated salary growth.
Step 2: Use the EPF portal to see if there is any current EPF balance available. If so, please enter the sum.
Step 3: The calculator will compute the corpus amount immediately, taking into account the applicable interest rate automatically. It’s that simple!
Conclusion
Investing in PPF under section 80C of the Income-tax Act could provide tax advantages under the previous tax system. Furthermore, interest rates are 7.1% from January to March 2024, as determined by government securities and evaluated quarterly. Finally, to keep your PPF account active, you need to make a minimum annual deposit of Rs 500 and a maximum deposit of Rs 1.5 lakh per fiscal year. Apart from this, turn to Taazabytes to stay informed about Finance related articles.