PPF (public provident fund) is one of the most popular small-savings schemes. On the other hand, an employee provident fund (EPF) account is opened by the employer on behalf of the employee. Employees' Provident Fund Organisation (EPFO), which administers the EPF scheme, has taken many initiatives to ease the claim process. An employee's 12 per cent contribution goes toward EPF kitty, while 8.33 per cent out of the total 12 per cent of the employer's contribution is invested in EPS or pension scheme. The balance 3.67 per cent is invested in EPF. PPF enjoys EEE or exempt, exempt, exempt status in terms of income tax implication - contribution, interest and maturity proceeds all are tax free. Interest rate on PPF and other small savings scheme are being reset every quarter from April last year, as compared to the annual mode earlier. The government recently kept unchanged the interest rates on Public Provident Funds (PPF) for the quarter ending December at 7.8 per cent.
Here five benefits of PPF account you may not know about
Loan Against PPF
A PPF account holder can avail of loan facility in the third financial year from the financial year in which the account was opened. The loan can be taken up to 25 per cent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for. The rate of interest on the loan shall be at 2 per cent per annum above the PPF interest rate. The loan is repayable in 36 months.
PPF Partial Withdrawal
Partial withdrawal is permissible every year from 7th financial year from the year of opening account, according to India Post's website. The maximum amount is limited to 50 per cent of the balance at the end of the fourth year immediately preceding the year of withdrawal or the amount at the end of the preceding year, whichever is lower.
Premature Closure Of PPF Account
Premature closure is allowed only after the account has completed five financial years and under specific conditions like expenditure towards medical treatment and higher education, according to an amendment in 2016.
PPF Account Extension
The original duration of a PPF account is 15 years. Thereafter, on application by the subscriber, it can be extended for one or more blocks of 5 years each.
PPF Interest Rate Calculation
The interest rate on PPF is compounded annually. Interest is paid on 31st March every year. The interest for the month is calculated on the minimum balance available in the account from 5th of a month to the last date of the month. (With Agency Inputs)
Here are the some benefits of retaining EPFO membership:
1) The employee is able to earn interest on the PF accumulation which is exempt from income tax. Financial planners say that EPF kitty should be meant for long-term savings, not to be withdrawn before one's retirement. Your EPF account continues to earn interest even if it has been inoperative for more than 3 years, or 36 months. Last year, EPFO had rolled back its earlier decision not to allow payment of interest on dormant accounts. Financial planners say that even if your earlier PF account continues to earn interest, it is better to transfer the accumulation to the present account. Under the current tax rules, withdrawal of accumulated PF balance is taxable if the employee has not rendered continuous service for five years or more to the employer(s).
Employees' Deposit Linked Insurance Scheme (EDLI)
2) Under the Employees' Deposit Linked Insurance Scheme, insurance benefit up to Rs 6 lakh is admissible to survivor of deceased member.
Employees' Pension Scheme 1995
3) 10 years of contributory membership ensures life-long pension under Employees' Pension Scheme 1995. The retirement body has three social security schemes Employees' Provident Fund 1952, Employees' Pension Scheme 1995 and Employees' Deposit Linked Insurance Scheme 1976 to provide provident fund, pension and group term insurance to its over four crore subscribers. Last year, the Labour Ministry had amended the Employees' Pension Scheme 1995 to provide the entitlement of minimum monthly pension of Rs 1,000 to pensioners.
EPF Auto Transfer
4) The Aadhaar-linked UAN number (verified and authenticated) facilitates the linking of previous accounts of the members in case of change of job. Transferring your employee provident fund (EPF) accounts while changing jobs has become easier. New joinees are no longer required to file separate EPF transfer claims using Form-13 after changing jobs. It will now be done automatically. EPFO has introduced a new composite form called Form 11 that will replace Form 13 in all cases of auto transfer. This was stated by EPFO in an order dated September 20, 2017. (Read: How PF auto transfer works)
5) EPFO subscribers can avail the facility of withdrawals for the purpose of, purchase/construction of house, repayment of house, illness, higher education, marriage etc.
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