What Is PF In Salary? & Difference Between EPF and PPF

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 (Full form of PF in salary is 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.

What is PF in Salary?

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.

What are the Types of Provident Funds?

Depending on your employment, different types of provident funds are available in India. They include:

• Statutory Provident Fund
  

  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.

• Recognised Provident Fund
  

  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.)

• Unrecognised Provident Fund
  

  This type of PF is when the CIT does not approve the above case of recognised provident fund.

• Public Provident Fund PPF

  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.

How Does PF in Salary Work?

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:

• Employee’s Contribution to PF
  Regardless of the salary, every employee must contribute 12% of their basic salary and dearness allowance to the provident fund.
• Employer’s Contribution to PF
  Even employers have to contribute 12% to the PF scheme of the employees, but instead of simply contributing 12% entirely of the PF, here’s how the breakdown goes for an employer. Out of the total 12%, an employer has to contribute 8.33% to the Employee Pension Scheme, and the remaining 3.67% is contributed to the type of provident fund scheme the organisation follows.

What are the PF Eligibility Criteria?

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:

• Every company with more than 20 employees should register with the Employees’ Provident Fund Organisation of India
• An individual who is getting a salary is eligible for a type of PF.
• If a company with less than 20 employees wants to register for a provident fund, they can still do it voluntarily.
• Employees earning less than ₹15,000 need to be registered for a type of PF, while employees with more than ₹15,000 salary may voluntarily still stay in the PF scheme.

Difference between EPF and PPF

Let’s understand the nuances of EPF and PPF side-by-side.

Bottom Line

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.

FAQs:

What is the interest rate on EPF for the financial year 2024-25?

The EPF interest rate for the year 2024 is 8.25% per annum. While it is calculated monthly, the interest rate is transferred to the provident fund account only at the end of the financial year, 31st March.

Can I withdraw the full PF amount?

Yes, you can withdraw the full PF amount post-retirement, the decided age is after 58 years. You can even withdraw the entire PF amount if you have been unemployed for over two months.

Is there any upper limit on contribution to EPF?

Employees and their employers must contribute 12% of the basic salary to the provident fund every month. This is the upper limit. If a company voluntarily contributes to a type of PF, it can contribute more than 12%.

Can an employee contribute more than 12% to EPF?

If an employee has chosen a Voluntary Provident Fund (VPF), they can contribute more than 12% to the fund.

Is PF taxable?

If you withdraw above ₹50,000 within five years of starting the PF account, then you are eligible to pay a tax of 10% with PAN TDS and 34.6% without PAN TDS. But, post the five-year mark, there are no tax implications for withdrawal of ₹50,000 or more.

Is PF mandatory?

Yes, every company with more than 20 employees has to register with the Employees’ Provident Fund Organisation of India mandatorily. A company with less than 20 employees may also voluntarily contribute to a provident fund.

Is PF part of 80c?

Yes. Section 80C of the Income Tax Act allows deductions of investments made for Employee Provident Fund, Public Provident Fund, and LIC Premium.

What is the basic salary for EPF?

The basic salary of an employee must be less than ₹15,000 a month to apply for an EPF.