PF or Provident Fund – Concept, Types, Withdrawals, Taxation, Benefits & more

Know everything about Provident Fund or PF here. Find details like its concept, types, benefits, withdrawals process, taxation & more.

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Know about Provident Fund or PF

Ideally, PF or Provident Fund is a government based scheme. It is a compulsory retirement scheme used in developing nations like India and Singapore.

Additionally, the scheme shares some features of the pension funds that employers offer.

An employee provides a contribution to the fund from his salary, and the employer makes the contribution on behalf of the employee.

The government handles the money in the fund. Lastly, the employee can withdraw the funds on retirement, or their survivors can withdraw it after the employee passes away.

In some cases, the provident fund pays out to the disabled employees who cannot work anymore.

Every month, these savings get accumulated, and employees can access it in a lump sum amount at the end of employment or retirement.

As the provident fund features a huge chunk of savings so an employee can quickly build a retirement corpus.

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Different types of Provident Funds or PF

General Provident Fund – This type of fund, generally the government bodies like railways or local authorities, maintain it. Hence, government bodies mainly define this type of PFs.

Recognized provident Fund- This type of provident fund is mainly applicable to all private organizations that employ more than 20 employees.

Additionally, the organization is eligible to get a claim to the PF of the organization. It also has a universal account number.

The account allows one to transfer the funds from one employer to another if an employee wishes to change the job.

Public Provident Fund – It is ideally a voluntary investment on the employee’s part. The scheme has a minimum deposit amount of Rs.50, and the maximum deposit amount is Rs.1.5 lakhs.

The PF features a maturity tenure of 15 years. You can withdraw money only after maturity.

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How does a Provident Fund or PF work?

If you are a salaried employee, then you are most likely to have a salary with a plethora of deductions. Provident fund is one such deduction, and you can see it clearly on your payslip.

A trust maintains the pool of funds on behalf of all the employees. The funds offer an interest rate, and the government decides it.

The balance grows continuously with the monthly contributions from the employee’s contributions.

Employees can withdraw the money from the account either on retirement or at the end of employment.

How to withdraw Provident Fund or PF?

Ideally, under the provident fund, both the employee and the employer make a monetary contribution to creating a fund. The same fund serves as a post-retirement corpus.

You can withdraw the money from the fund or the corpus after meeting some mandatory requirements.

Both the employer and employee contribute 12% every month of their basic dearness allowance and pay. A person accumulates the input throughout the career of an individual.

Out of the 12%,  3.67% of the employer’s contribution goes towards EPF, and the remaining 8.33% goes in the Employees’ Pension Scheme.

PF is also known as the employee provident fund. It is one of the most popular social security programs, and the Government of India manages it.

Thanks to the attractive rate of return at 8.65% that individuals can accumulate a vast retirement corpus.

The employee provident fund offers financial security to the Indian residents working in the organized sector.

No doubt, one can withdraw provident funds only after retirement, but employees can start it early in some cases.

The different types of PF withdrawals include PF final settlement, PF partial withdrawal, and Pension withdrawal benefit.

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When can an employee withdraw PF Prematurely?

Here are the various circumstances when an employee can withdraw Provident Fund prematurely –

In Case of Unemployment

If a PF account holder is unemployed for a month or so, then he can withdraw at least 75% of the total sum.

The account holder can withdraw the remaining 25% of the amount if the unemployment tenure is more than two months.

For Education

The account holders are eligible to withdraw at least 50% of the total contribution to the scheme to pay for their higher education.

They can also withdraw money to pay their kid’s education fees after class 10. But funds are transferable only if an employee makes a contribution for at least seven years.

To Pay for Marriage

As per the latest rules, employees can withdraw at least 50% of the employee’s contribution to PF for their wedding.

You can only withdraw the money if it is your marriage or someone concerned to you. But an employee can withdraw the fund only if he or she makes a contribution for at least seven years.

For Specially-Abled People

If an employee is a specially able individual, then he or she can withdraw six months basic wage along with dearness allowance.

They can use the amount to pay for the equipment cost. The provision mainly aims to help people reduce their financial burden.

For Medical Emergencies

A PF account holder can withdraw money to pay for some medical emergencies. You can either withdraw it either for your troubles or meet the medical emergencies of your immediate family.

An employee can withdraw six months of basic wage along with a dearness allowance.

To pay for the Existing Debts

Employees can withdraw 36 months of basic wage and dearness allowance. Or they can also withdraw the total of employee and employer share along with interest to pay the existing debts.

But you can withdraw the amount only after contributing to the scheme for at least ten years.

To purchase residential plot or property

As per new rules, the employee who holds a PF account is eligible for a premature withdraw to buy a property.

Reducing the tax burden on PF withdrawal

On premature withdrawal, an employee can reduce the tax liability. Ideally, premature withdrawal is most likely are liable for TDS.

But you don’t have to pay any TDS if you choose to withdraw the money after five years.

Process of Provident Fund withdrawal

Ideally, a PF withdrawal form is a document that allows members of the fund to access the funds accumulated.

Different types of PF forms available:

EPS form 10C – Employees are most likely to need this form. When it comes to applying for withdrawal benefits or EPS certificate.

At the same time, members choose to retain the pension fund’s membership. When members decide to maintain the membership, they can also enjoy the benefits of the pension fund.

EPF form 10D – The retired employees are most likely to use this form, and a legal claimant files it.

If employees want to withdraw money in the formal sector, then they need to contribute to the scheme for at least ten years.

EPF Form 19 – People use this form mainly during the final settlement. Employees who are retired or unemployed can use this form. Additionally, one can easily apply for this form online.

EPF form 15G – Employees need to fill this form if they want to withdraw funds from the scheme before completing five years of service.

Well, the existing organization will deduct tax at source from the proceeds.

There is no tax liability if the account holder’s total income, including provident fund proceeds, fails to exceed the minimum tax slab.

EPF form 11 – This form most likely includes the account holder’s bank account number, EPS, and EPF number.

The employees need to present this form to their new employer when they choose to change their job.

Tips to fill the form for PF withdrawal

1st Step – Firstly you need to login into the official web portal with your Universal account number.

2nd Step – After you log in, you need to click on the online services tab.

3rd Step – You need to enter the last four digits of the bank account number.

4th Step – You need to then click on the Certificate of Undertaking’ option.

5th Step – Click on the I want to apply for option and select Only PF withdrawal.

6th Step – You can click on the option Get the aadhar OTP

7th Step – Additionally, you will get an OTP on your registered mobile number. You need to enter to verify.

8th Step – Lastly, when the submission is complete, you can also receive a reference number.

Benefits of Provident Fund

The best part about the online form is that it allows submission for withdrawal under the provident fund scheme.

By filing these forms, one can get the proceeds within five days of an online application. The portal allows members of the funds to withdraw the funds from the account quickly.

But you must ensure that your account is linked with the UAN. Above all, this form makes public services quite transparent and efficient for members.

Limitations of Provident Fund

No doubt, the employer attestation is not essential, but the final settlement is only possible when the employer updates the member’s exit date.

For an advance refund, a member can access only form 31.

Conclusion – PF or Provident Fund

Hence, the Government of India backs the provident fund scheme, and it is a contribution based scheme.

Under this scheme, both employer and employee need to contribute to creating a monetary fund. It helps in serving the post-retirement needs.

Thus, one must invest in this scheme as it promises to offer a plethora of benefits to the employees.

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