General Provident Fund (GPF): Is GPF better than EPF?

Introduction

As we all are aware in today’s world Savings plays a critical part in an individual’s financial standing. It is essential to make your post-retirement plan. Keeping these facts in a view the Indian government has introduced Provident Funds (PFs).

In India, there are three types of provident funds, namely the General Provident Fund (GPF), Employees’ Provident Fund (EPF), and Public Provident Fund (PPF).

Each provident fund mentioned above helps an individual to save the funds who has a regular source of income & which help him in future when he is out of income.

Let’s Understand in detail,

What is GPF?

GPF is a provident fund scheme that refers to government employees. In this system, government officials contribute some amount of their salaries to the account. The accrued balance is paid to the employee at the time of the retirement or superannuation. Workers employed under Government of India are required to contribute minimum of 6% of their salary towards this fund to secure financial standing on retirement.

Eligibility Criteria of GPF

Here is the list of persons eligible for this type of PF fund:

• Employees of the Government of India
• Temporary government servants with continuous service of at least one year
• Re-employed pensioners (excluding those eligible for the Contributory Provident Fund)

How much contribution can be made in GPF?

Government employees eligible for the General Provident Fund need to contribute a minimum of 6% of their salary toward GPF. The maximum amount an individual can contribute equals 100% of his/her income.

Contribution to GPF can only be stopped in the case of suspension or retirement. Such contribution is usually stopped 3 months prior to when an individual is slated to retire, according to the GPF rules.

Tax Benefits of GPF?

Contributions to GPF are eligible for tax exemptions under Section 80C of the Income Tax Act. Additionally, interest earned and withdrawals at the time of retirement are also tax-free.

What is EPF?

Employee provident fund is a saving fund which provide social security to the organized sector employees governed by Employees’ Provident Fund Organization (EPFO), Under this plan companies with 20 or more workers have been legally required to register with EPF. Aside from retirement benefits, EPF members are entitled to a pension under the Employees’ Pension Scheme (EPS) after 10 years of cumulative service.

Under EPF, employees contribute 12%/10%** of their basic salary (up to Rs. 15,000), matched by the employer. The employer's contribution is allocated with 8.33% to EPS (Employee Pension Scheme) and 3.67% to EPF. Presently, the EPF interest rate is fixed at 8.15%. Typically, withdrawal is permissible at age 58, yet partial withdrawals are allowed for contingencies like unemployment, medical needs, education, or marriage.

**10% Rate is applicable for

• Any establishment in which less than 20 employees are employed.
• Any sick industrial company and which has been declared as such by the Board for Industrial and Financial Reconstruction.
• Any establishment which has at the end of any financial year, accumulated losses equal to or exceeding its entire net worth and
• Any establishment in following industries:- (a) Jute (b) Beedi (c) Brick (d) Coir and (e) Guar gum Factories.

Eligibility Criteria of EPF

The eligibility criteria for EPF in India are as follows:

• Any individual employed in an organization covered under the EPF Act, 1952.
• Working professionals earning a basic salary of up to Rs. 15,000 per month. (This threshold may vary depending on government regulations.
• Contractual and temporary employees may also be eligible, depending on their contract terms and regulations.

Tax Benefits of EPF

If an individual withdraws the balance amount from his/her EPF account after 5 years of account creation, it is exempt from tax. Moreover, contributions made in an EPF account every year up to Rs.1.5 lakh are eligible for tax exemptions under Section 80C of the Income Tax Act, 1961.

Key Difference between GPF & EPF

Some of the key Differences between EPF & GPF can be summarized as below :

Conclusion

After getting all details of above mentioned plans it is important to understand the correct fund as all three provident fund types serve long-term savings goals, each has unique features in terms of eligibility, contributions, interest rates, and withdrawal conditions, giving a variety of options for long-term savings and financial stability. Hence one should compare all options & choose wisely which option will provide you maximum benefit.