General provident funds help government employees build a sufficient retirement corpus that will give them a sense of financial security. In short, GPF is a provident fund only available to the government employees in India. Pension funds, in contrast, include aspects of both lump sum and monthly pension payments. When a subscriber leaves government service or retires, the GPF amount is available for withdrawal. He or she may also take partial withdrawals after 15 years of service or within ten years of retirement.
Gratuities and Provident Funds function differently, although both contain lump sum distributions after work. The former is a defined benefit plan, while the latter is a defined contribution plan. The Provident Fund is a government-managed retirement savings program for all salaried workers who can contribute an amount of their monthly pension fund. We can readily access the monthly funds accrued when we retire or leave our job. This article aims to tell you all about what GPF is and how it ensures financial freedom, especially for a government employee.
What Is GPF?
GPF, or General Provident Fund, is a mandatory savings scheme only for government employees.
Employees contribute a monthly amount deposited into an account using the current applicable interest rate for the GPF.
As a result, at retirement, the employee receives the total amount accrued during the employment time. In addition, the General Provident Fund interest rate is updated following governmental conditions. According to the GPF interest rate year-wise list, the GPF’s current interest rate is 7.1%.
Features Of General Provident Fund
1. The Government Provident Fund is managed by the Department of Pension and Pensioner Welfare within the Union Ministry of Personnel, Public Grievances, and Pensions.
2. The GPF is available to all temporary and permanent government employees by contributing a certain percentage of their salary.
3. While joining the GPF, employees must choose a family member as their nominee. The nominee of the employees’ fund may be one or more specific people. Besides, the employees decide how much of the due sum will be divided among the nominees in the event of their death.
4. The GPF Fund’s employees receive a 7.1% interest rate on deposited funds.
5. The GPF Fund’s money is deposited into the employees’ accounts after their retirement from the government office.
How To Open A GPF Account
Understanding the General Provident Fund (GPF) and how a GPF account can be opened is essential. First, we fill out the proper paperwork and submit it to the Accountant General of the appropriate state. They will then assign an account number. Also, a monthly deduction is prescribed from employees’ salaries to the DDO (Drawing and Disbursing Officer).
At the end of the Financial Year, the DDO will send the employee a summary of credits and debits (on the interpretation of the loan) and the closing balance, including any accrued interest. Additionally, the AG’s office of the relevant state maintains the GPF account.
Therefore, the necessary paperwork must be filled out and delivered to the accountant general of the respective state for the successful opening of a GPF account.
Eligibility Criteria For GPF
Anyone who meets the requirements listed below is eligible to contribute to the GPF Account:
- General Provident Fund is applicable for government employees based in India under a specified salary rank.
- A private sector worker is not eligible for the General Provident Fund.
- To become a member of the General Provident Fund, every employee has to pay a minimal amount of their salary as a contribution.
Withdrawal Process Of GPF
- The GPF account matures at the time of the particular government employee’s retirement. The only need to withdraw an employee’s accumulated GPF funds is to complete 10 years of service or within 10 years of retirement. This is only applicable if the worker has not left the government service.
- Regardless, If the employee quits the job at any stage, they become eligible to withdraw the GPF balance irrespective of their service tenure.
- Lastly, the GPF sum will be paid to their nominee if the employee passes away.
- Also Read: What is PPF – Public Provident Fund
GPF vs EPF vs PPF Comparison
|Full-Form||Public Provident Fund||General Provident Fund||Employee Provident Fund|
|Eligibility Criteria||PPF is offered to salaried, independent, and unemployed individuals. They apply to anyone over the age of 18, regardless of their age. Businesspeople can use the PPF to make short-term investments and periodically renew them.||GPF is a benefit only available to those working for the government. After their term of employment is up, the employees are eligible to claim the fund’s sum.||EPF is available to everybody who earns a wage from the organized sector. Employers and employees both value the contributions made to EPF funds. The government invests in certain companies and makes contributions to the EPF funds.|
|Interest Rate||The government pays interest; the current interest rate is 8%.||The government pays interest; the current interest rate is 8%.||The EPF interest rate is based on the earnings made on the EPF account. The interest rate at the moment is 8.65%.|
|Time-Period||PPF maturities last for 15 years.||When a person retires is when the GPF reaches maturity.||EPF maturity occurs when a person reaches the age of 58.|
|Premature Period||If there are good reasons—such as medical or academic ones—after five years.||As soon as you leave the government services.||within two months of leaving the services.|
|Loan Facilities||In the third and sixth fiscal years following the account’s creation, loans secured by PPF funds are available. Up to 25% of the money in the PPF account may be borrowed.||Government employees have access to loans secured by their GPF funds anytime during their employment.||After seven years of service, the employee is eligible to borrow up to 50% of the money put in their EPF account for marriage and education. Still, after ten years of service, they are eligible to borrow up to 90% of the money deposited.|
|Tax Benefits||Tax deduction under Section 80C of the Income-tax Act. on the interest earned, refunds received, and contributions made.||Tax deduction under Section 80C of the Income-tax Act. on the interest earned, refunds received, and contributions made.||Tax deduction under Section 80C of the Income-tax Act. on the interest earned, refunds received, and contributions made.|
These three differ primarily because GPF is a provident fund account for government employees, and employees contribute a portion of their salaries to the account. As a long-term investment, the PPF, on the other hand, offers tax-free dividends and interest. Because of its official backing, borrowing money against it is very simple. The employee can contribute up to 12% of their monthly basic pay to the EPF, a provident fund, by contributing a percentage of their salary to the account.
The Bottom Line
In conclusion, the General Provident Fund (GPF) was appointed as a mandatory savings plan for government workers only. GPF is an asset after retirement and allows employees to save a considerable sum for their golden years. It is perfect for assisting government employees in saving money for future goals such as child’s education fees, marriage expenses, house loans, or even a medical emergency.
What is the contribution amount of GPF?
A General Provident Fund (GPF) subscription’s cost is set only by the member. The most significant contribution amount is 100% of the employee’s pay. The contribution percentage must not be less than 6% of the employee’s entire income.
What is the taxation on GPF?
The interest earned on any contributions made during the FY 2021-22 over Rs. 5.00 Lakhs (GPF) is taxable as “Income from Other Sources” by the employee or contributor.
What is the GPF interest rate in 2022?
The Ministry of Finance has said that the GPF’s interest calculations have been updated. For all the General Provident Fund members and clients of comparable other funds, the current GPF interest rate for 2021–2022 is 7.1 per cent. The GPF interest rate is the same for all government workers.
What is the greatest contribution I can make to GPF?
The General Provident Fund saving account currently has a 20-lakh rupee opening balance. In all, 3 lakh rupees would be contributed to the provident fund in the fiscal years 2021–2022.