Provident Fund (PF) Definition
Provident Fund is a crucial aspect of employee benefits in many organizations. It is a savings scheme that helps employees save a portion of their salary for retirement. Let’s dive deeper into what PF entails for HR professionals.
Key Features of Provident Fund:
1. Contribution: Both the employer and employee contribute a certain percentage of the employee’s salary towards the PF fund. This contribution is mandatory as per government regulations.
2. Tax Benefits: The contributions made towards PF are eligible for tax benefits under Section 80C of the Income Tax Act. This makes it a popular investment tool for employees.
3. Interest Rates: The PF fund earns interest, which is compounded annually. The current interest rate is set by the government and is generally higher than fixed deposits in banks.
4. Withdrawal Rules: Employees can withdraw from their PF account for specific purposes such as buying a house, medical emergencies, or post-retirement. However, premature withdrawal may attract penalties.
How Does Provident Fund Work?
Once an employee joins a company, they become eligible for PF contributions. The employer deducts the employee’s share of PF contribution from their salary and contributes the employer’s share as well. These contributions are deposited in the employee’s PF account maintained by the Employees’ Provident Fund Organization (EPFO).