Savings

EPFO interest rate cut to hit long-term retirement savings

With the government declaring a lower interest rate on the Employees Provident Fund (EPF) corpus – at 8.1% – for the current financial year 2021-22, your pension corpus could suffer a setback. EPF is one of the most popular tools used for retirement, thanks to the many benefits it offers, including guaranteed returns and tax efficiency.

The Employees Provident Fund Organization (EPFO) reduced the rate to 8.5% in FY21. The 8.1% rate reported for FY22 is the lowest offered by the EPFO for more than 40 years.

For most employees in the private sector, the EPF is the primary retirement planning tool, which is why the price announcement is eagerly awaited each year. It is one of the few instruments that facilitates regular investment.

Here is a guide to understand what EPF is, the benefits it comes with, and how to check EPF balance.

What is the ETH?

The EPF scheme is a social benefits scheme under which the employer and employee each pay 12% of the employee’s base salary and high cost allowance to the EPF.

It is mandatory for employees with an income of less than Rs 15,000 per month to register for a ETH account. In accordance with the law, organizations must register for the EPF scheme if they employ more than 20 employees.

“Organizations with less than 20 employees can also join the EPF system on a voluntary basis.” Employees who earn more than Rs 15,000 can also create an EPF account. However, they must obtain the approval of the Assistant Commissioner of PF. “The whole of India (except the states of Jammu and Kashmir) can benefit from the provisions of the EPF scheme,” says Shetty.

These rules automatically bring a large number of employees under the EPF network.

EPR provides a deduction benefit at the time of assessment under Section 80C of the Income Tax Act 1961

Benefits of ETH

What makes it attractive is the fact that the returns of the scheme are guaranteed by the government.

It is also a tax-efficient tool. EPF enjoys EEA tax status, which means it provides a deduction benefit at the time of contribution under Section 80C of the Income Tax Act 1961; interest earned on it is tax exempt; and the final returns are also tax-free in the hands of investors.

The EPF authorizes partial withdrawals, under certain conditions. You can partially withdraw funds from your EPF account for a medical emergency, house purchase or wedding expenses.

The EPF has several advantages. While this helps save money in the long run, it can also help an employee financially in an emergency. It is not necessary to make a one-time, lump-sum investment, as deductions are made monthly from the employee’s salary. Over a long period, the scheme helps employees save a large amount of money,” says Adhil Shetty, CEO of Bankbazaar.com.

You can even withdraw the entire amount of the PF, depending on circumstances such as reaching retirement age, resignation due to permanent mental or physical incapacity, permanent relocation to other countries or the death of the member, among others.

How to determine your EPF balance

There are mainly four ways to check your EPF balance.

First, you can check it through the EPFO ​​member portal. Log in using your UAN and password to find the EPF balance under Member ID.

Second, you can check your balance using the UMANG (Unified Mobile Application for New-Age Governance) app. Apart from checking your balance, you can also generate and track claims through this app.

Third, you can use the missed call service. It is possible to check your EPF balance by giving a missed call to 011-22901406, from your registered phone number.

Fourth, you can use an SMS service. If your UAN is activated, you can text 7738299899 to find out how much you have in your EPF account.