In the realm of employment and remuneration, it is essential to understand the various components that make up an employee’s salary. One such component that often raises questions is PF or Provident Fund.
This article aims to delve into the concept of PF in salary, explaining its types and PF eligibility. By gaining clarity on this topic, individuals can better comprehend their financial entitlements and plan for a secure future.
PF in salary refers to a mandatory contribution made by both employers and employees towards a retirement savings scheme governed by the government of India. It is a retirement scheme that is maintained throughout the working years to ensure that there are enough funds during retirement.
Having PF in salary is helpful in the future as it creates a retirement corpus where making withdrawals for the entire amount is possible post-retirement. The amount in the provident fund typically includes the employer’s contributions and interest rate free from income tax.
Depending on your employment, different types of provident funds are available in India. They include:
This provident fund type is primarily established for employees working for the government, railways, universities and educational institutions, and other specified entities. The eligible employees for this type of provident fund account earn interest rates, decided as per the government, on their savings.
This provident fund type is for private sector employees from organisations with more than 20 employees. Such companies can either have their own PF account or join a government PF scheme. If the company chooses to have its own PF trust, they need approval from the CIT (Commissioner of Income Tax.)
This type of PF is when the CIT does not approve the above case of recognised provident fund.
Public Provident Fund, is a type of PF open to the public. Anyone can invest in it. It doesn’t matter what the nature of your employment is. So, whether you are self-employed or salaried, you can invest in this PF scheme as long as you have the funds to invest. The tenure for PPF is about 15 years, and you can invest ₹500 to ₹1.5 Lakh yearly.
Organisations with more than 20 employees have to open a PF where both the employer and the employees contribute to the fund. Generally, the contribution involves around 12% of the basic salary, keeping in mind the dearness allowance, if any. Here’s how PF in salary works:
While any type of provident fund is excellent for the security of a working professional post-retirement, there are certain criteria a company and employee should know about. Here are some PF eligibility criteria that you should be aware of:
PF in salary refers to the contribution made by an employee and employer towards their retirement fund. It is a mandatory deduction as per the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, in India.
Understanding PF is crucial for employees as it secures their future and provides tax benefits and financial stability during retirement. By actively participating in the PF scheme, individuals can ensure a comfortable post-retirement life. Therefore, both employees and employers need to be well-informed about PF in salary and its implications.