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What is Provident Fund? How Provident Fund can help in reducing Income Tax? What are the types of Income Tax? How is provident Fund useful?
Provident Fund is a government-managed saving scheme, where you invest your money and benefit from the accumulated interest over time. It came into existence on 15 November 1951 and is now under the Act called ‘Employees Provident Funds and Miscellaneous Provisions Act, 1952’ which extends to the whole of India.
Provident Fund is of 3 types:
General Provident Fund (GPF): is availed to government employees.
Employees Provident Fund (EPF): is the recognized Provident Fund, which applies to all privately-owned organizations.
Public Provident Fund (PPF): is a voluntary investment made on the part of the employee.
A person can save on income tax by investing in these schemes. A person can claim a deduction of up to R.s. 1,50,000 under section 80C. the minimum investment in a PPF account is Rs. 500 and the maximum is Rs. 1,50,000.
An Employee Provident Fund is a scheme for all salaried employees working in a corporate organization, with 20 or more employees. The Employee Provident Fund Organization (EPFO), has instructed all organizations to put a fraction of employee salaries into the provident fund. The employers are required to contribute their share to the provident fund.
The main aim of the EPF scheme is to ensure that by the time employees retire or is unable to work anymore he or she shall have a sizeable fund in place which can act as an emergency fund.
An employee’s contribution to the Employee Provident Fund (EPF) account also earns a tax break under Section 80C of up to Rs 1.5 lakh. This amounts to 12% of salary that is deducted by an employer and deposited in the EPF or other recognized provident funds. The current interest rate on the EPF is 8.5% p.a.
EPFO comes under the Ministry of Labour and employment. This organization was founded on 4rth March 1952.
EPF is the world’s biggest social security scheme. EPFO is one of the world’s largest social security organizations. According to the annual report of 2016-2017, it maintains 19.34 crore accounts pertaining to its members.
Question and Answers:
Q. Can a person have both EPF and PPF accounts?
Yes, you can have both EPF and PPF accounts.
Q. Can an employer have an EPF account?
No, an employer cannot have an EPF account unless the company is providing them the facility. He/she can apply for a PPF.
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