Hi Raag,

Its really good to read your articles. I want you to also write about the investment option in PPF and its benefits.

Hi Raag,

Nice Article as usual.

However, I have a doubt regarding the excel which is attached with this article. You have mentioned Year in the first column, but you have taken only one month's contribution towards the PF.

But the contribution from the individual and company is for every month, right? So, I think the Accmulated Amount in the end would be drastically increased (if what i thought is correct).

Also, I heard that from the company's contribution some percentage goes towards pension. Can you clarify/focus on that too in your coming articles.

Thanks for the info.

Hi Srinivas,

Excellent catch!! Thanks a lot for pointing this out.

You are absolutely right - the individual's and the company's contribution happens every month. I have corrected the figures in the article, and have also corrected the spreadsheet.

Thanks again...

Provident Fund Contribution and Pension:

----------------------------------------------------

You have raised another interesting point.

In case of government employees, although 12% is deducted from the salary, only 3.67% actually goes to the PF account.

The remaining 8.33% goes to the Employees Pension Scheme.

Therefore, in such cases, the employees would get significantly lesser amount on retirement as compared to what is projected here.

But since these employees would receive a regular monthly pension on retirement, they can easily afford to have a smaller retirement corpus.

After all, the aim of the retirement corpus is to produce a steady monthly income - if that is met to some extent by the pension, a smaller amount from PF is quite tolerable.

And, if the employee feels that the PF amount might not prove to be enough, she / he can always contribute to VPF!

Hi Raag,

A very good blog you are writing here. I am amazed that I discovered it only yoday.

My query is: I have a job that requires frequent long term postings abroad. During these periods my indian salary stops and so also the flow to my EPF fund stops. If there is no addition to the EPF account, do I earn interest on the amount already in the account?

Someone told that the interest addition is suspended for those accounts where there is no contribution for 3 months.

Thanks in advance

Regards

Kaushik

Thanks, Kaushik.

As per my knowledge, the interest addition is not suspended. The amount lying in your PF account would keep earning interest at the rate declared every year.

To confirm this, you can check your PF statements (issued every year) when you are back in India.

hi raag,

1.can i close my vpf for every fiscal year and get money back....

2.can i take my vpf fund for my marriage purpose...please clarify...

Hi Roopkumar,

1. VPF is just li PF, and is meant for long term savings primarily for retirement. Therefore, the account can not be closed every year. The account remains active till your retirement, and you get all your money along with the accumulated interest at that time.

2. You can withdraw money from the PF / VPF account before retirement. But this has to be for certain specified reasons only. These reasons include:

- To buy / build a house or to buy land.

- To repay a housing loan

- To pay for a wedding

- To pay for hospitalization of you family member or yourself

- If the company you are working for shuts down

- If your employment has been terminated

So, yes, you can withdraw money from VPF for marriage purpose.

hi raag,

really thanks a lot for ur information...its very usefull...i wish keep in tounch with http://www.raagvamdatt.com/Article136.html..

im really happy that i got a personalised mail to my mailbox regarding the querry...

thanks,

roopkumar.av

hi raag

is vpf contribution is fully excempted for tax or is there any calculation for the same

please clarify..

roopkumar.av

Its my pleasure to be of help to you. Please don't hesitate in asking any more questions.

VPF:

All contribution to VPF is exempt from income tax under section 80C of the Income Tax Act.

The amount is governed by the cap specified in section 80C (which is currently Rs. 1 Lakh).

To know all the details about Sec 80C, please read "Saving Income Tax – Understanding Section 80C Deductions".

Can i discontinue VPF deducation from my salary after a period of 3-4 years after the initiation.

Is it possible to close it before retirement.

Thanks for the informative article.

You mentioned that the PF amount is not taxed on withdrawl at the time of retirement. What are the provisions in case the money is withdrawn at the time of resignation?

Hi,

Very informative article

I want small information on VPF. Can you help me with this subsequent question?

1. We are 20 employees, my question can we go for VPF?

2. How much can company has to contribute i.e. is there any % for the company also.

Regards

Jessica

Dear Mohit,

Voluntary Provident Fund, as the name suggests, is completely voluntary.

Yiou can start contributing to it any time, and can stop your contributions at any time as well.

You can also change the amount that you contribute to VPF.

Companies might have some internal rules (for example, say a 1 month notice for any change / discontinuation), but otherwise, there is no restriction.

If you resign, and join another job, you can transfer your PF to the new company. This is not treated as a withdrawal - there would be no tax, and the PF account would continue as usual.

But if you resign and actually withdraw the accumulated PF amount, the following rules apply:

If you have maintained the PF account for more than 5 years, there is absolutely no tax on the PF amount withdrawal.

If you have maintained the PF account for less than 5 years, the amount of withdrawal is included in your income for that year, and is taxed as per the prevailing income tax slabs / brackets.

(To know the current income tax slabs / brackets, please read "Budget 2008 – Impact of Income Tax Slab / Bracket Changes on You")

There is even more pain in this case - the income tax relief that you enjoyed on PF contributions would be rolled back, meaning that you would have to pay the tax that you saved.

Apart from this, employer's contribution to your PF fund, and the interest earned by you is also included in your income of the respective years, and you would have to pay income tax on it.

Basically, what this means is that it is best not to withdraw the PF amount if you have not mmaintained the PF account for more than 5 years.

In any case, PF is for long term savings, and the funds in your PF account should not be withdrawn. It is best to transfer your accumulated PF money to your new employer when you change jobs.

Hi Jessica,

I am glad you liked the article!

1. If your company has 20 employees, it should already be having Provident Fund (PF) for the employees.

(In fact, in the near future, even companies having as less as 10 employees would need to have PF)

IN that case, you should definitely be able to go for VPF, which is nothing but extra, voluntary contribution to your PF account.

2. The company contributes an equal amount (it is called "matching contribution") for your regular PF contributions.

But in case of VPF, there is no contribution from the company - VPF is the amount that you want to save "extra", and so, the company doesn't have to match this payment.

what is the minimum years of service required to get back the total amount of provident fund (including company's contribution) at the time of resignation to the company

Dear Animesh,

There is no minimum years of service required to withdraw your PF balance. You can withdraw your PF balance whenever you resign from your job.

But the years of service determine the taxability of this withdrawal.

If you withdraw the PF amount with less than 5 years of service, the amount is taxable. But if your service is for more than 5 years, the withdrawal is tax-free.

Please note that in calculating the years of service, the years you have served in your previous jobs (where you were contributing to the PF) should also be included.

Mr Raagva,

I would like to thank you for the very informative site.

Its a boon for people like me who are grouping in the dark for right information.

Additionally, the formats are a blessing too.

I hope i get more information about medical insurance too...just like i got the one for PF.

Thanks and keep up the sun shining in your site

Prasanna

Dear Prasanna,

Thanks a lot for all the praise! I am really happy that I could be of help to you.

Medical insurance is a great topic to write about - thanks for suggesting it! I would write on it shortly.

Thanks again...