It is a welfare scheme for the betterment of the employee. A part of the amount is deposited both by the employee and the employer. The amount is deducted by the employer from the employee’s salary and deposited in the provident fund account. The money which is accumulated is given to the employee on retirement if certain conditions are satisfied.
It is applicable to every establishment or factory where twenty or more persons are employed. It is social security legislation. 12% is contributed by the employee towards the Provident Fund, however, 13.61% is contributed by the employer. The Provident Fund amount and interest is not taxable if the employee withdraws the amount at the time of retirement.
[Suggested Read: Shops and Commercial Establishments Act (S&E), 1961 – Brief Notes]
According to the Amendments made in the Act and as per the Union Budget of 2018, females who are newly recruited have to pay only 8% towards PF as opposed to the earlier 12%. This is available to them for the first three years of employment. The government has also proposed to contribute 12% of wages towards PF or new employees for the first three years of employment.
- This Act is applicable to all of India except Jammu & Kashmir And is managed by the Employees' Provident Fund Organisation.
- It mandatorily covers all establishments that employ 20 or more people and may, as an exception, include establishments with less than 20 employees.
- The employee also has the option of contributing a higher amount voluntarily which is known as the Voluntary Provident Fund (VPF). This, however, is not matched by the employer.
- After retirement at the age of 55, the PF can be claimed by the employee which includes the employee and employer's contribution along with the interest incurred on the amount over the years.
- An employee can also access the PF before the retirement as 'advances' which is granted in specific situations like medical requirements, loan repayment, education etc. But the amount advanced depends on situation and years of service.
