The government, through finance minister, had proposed a retrogressive tax and withdrawal clause on the EPF while delivering the budget speech in February 2016. In a recent address, the finance minister, Hon. Arun Jaitley, was quick to defend the move and explained the rationale behind the taxation and restricted withdrawal proposal. He said the government’s aim was to achieve policy objectives through taxation. The minister was also categorical that the proposal would have affected the minority subscribers, not the over 3.2 crore subscribers who earn less than Rs 15,000 a month.
EPF is India’s largest pension fund with assets value estimated at US$104bn. Apart from having a fairly decent interest return, which is almost same as bank fixed deposit, below are 4 reasons why citizens consider EPF to be the best long-term savings plan.
Provident Fund benefits
The employer contributes 12% of the employee’s basic pay to the member’s provident fund. This is guaranteed by the EPFO who also ensure that these contributions accrue interest at a rate determined by the Central Government. A member can also withdraw from his accretions to cater for financial emergencies such as for education, purchase or construction of house or flat, settling an existing home loan, or to cater for medical expenses. Such expenditure must, however, be accounted for and if found to be misused a refund is demanded. A member can also settle the account upon resignation and receive his contribution, employer contribution, and interest accrued.
Through the EPF members are eligible for a pension or to their family in case of death of the member. The member is also eligible for a scheme certificate that displays the service and family details of a member. This certificate is used to apply for the pension (for members who have attained service of over 10 years). A member is guaranteed of pension even if the employer does not contribute to the pension fund.
Members who are not eligible for a pension can withdraw accumulated amounts in their pension account. This amount is calculated on the basis of the last average salary and service tenure and not on the actual amount existing in the pension fund account.
Upon the death of a member the provident fund, pension, interests earned and Insurance (EDLI) amount are paid to the family or a nominee.
These reasons make the EPF the preferred long term savings and investment plan for the working population in India.