General Provident Fund explained: Your path to financial freedom

If you are a government employee, you can easily take control of your financial future with the General Provident Fund (GPF). This systematic investment helps build a retirement corpus that can provide financial security after leaving service. With its low-risk profile, GPF serves as a reliable long-term savings tool for government staff. 

How? We’ll discuss that in detail in this article. Read on to learn more about GPF, its features and benefits. 

Also read: Government bonds in India – Meaning, types and features 

What is a GPF account and how does it work?

The General Provident Fund is a government-mandated savings programme that helps service personnel and their families during and after their service by setting aside money for emergencies.

You are eligible for GPF if you are a temporary government employee after working for the government continuously for one year, a pensioner who has been re-employed, or a permanent government employee. Everyone must contribute to their GPF account every month.

Employees may put a percentage of their paycheck into the General Provident Fund (GPF) through an account. When an employee retires, they get the whole amount that has accrued during their work. Interest rates on GPF are adjusted regularly following announcements given by the government.

• The central government will handle your GPF funds if you work for the central government or a state without an AG office (Accountant General).
• The next step is to fill out the required forms and send them to the state’s Account General. 
• After that, they’ll give you an account number. Additionally, they outline the procedure for the Drawing and Disbursing Officer (DDO) of that company to receive a monthly deduction from employee wages. 

GPF contribution amount

Each subscriber is solely responsible for determining their own GPF subscription amount. However, the contribution rate must not fall below 6% of the employee’s gross pay. A worker may contribute a maximum of 100% of their wage.

Also read: PMRY: Guide to the central government loan scheme for unemployed youth 

Features of GPF

• The Ministry of Personnel, Public Grievances and Pensions oversees the GPF through the Department of Pension and Pensioner’s Welfare.
• Government personnel can join the GPF by contributing a certain percentage of their paychecks to the scheme.
• As of right now, GPF offers an interest rate of 7.1%.
• Unless the subscriber is suspended, a monthly membership to GPF is necessary.
• The contributions to the GPF must be stopped 3 months prior to the superannuation date.
• The subscriber’s final sum is paid immediately upon retirement.
• When a subscriber joins the fund, they must fill out the necessary paperwork to nominate a family member. Nominees are designated to collect the fund’s accrued credit if the subscriber passes away.
• To get the last distribution from the fund, the subscriber is not required to fill out any paperwork.
• Upon the demise of a subscriber, their beneficiary may receive the amount in their account as a credit, plus an extra sum equal to the average balance in the account for the three years leading up to their demise; however, this is upon meeting the requirements laid out in the applicable rule.
• Under that guideline, the extra sum that needs to be paid cannot be more than ₹ 60,000. Also, the subscriber has to have served the organisation for at least five years before passing away to get this benefit. 

Also read: Tax-efficient withdrawal strategies for retirement in India 

Advantages of opening a GPF account

A General Provident Fund investment has the following advantages.

• Retire comfortably:

Investment in the GPF guarantees government employees a comfortable retirement by giving them a source of income once they leave the workforce.

• Returns assured:

The GPF provides assured returns at a predetermined interest rate that is routinely reviewed and adjusted by the government.

• Financial advantages:

Taxpayers can claim GPF contributions as a deduction according to Section 80C of the Income Tax Act.

• Investment with zero risk:

Since the government guarantees GPF and sets the rate of return, investing in it carries no risk.

• Available for loans:

Employees have access to GPF loan facilities for a range of objectives, such as home improvement, education, and healthcare.

• Ability to adapt:

If an emergency or unexpected expense occurs, the employee can use the GPF’s flexible withdrawal and partial withdrawal alternatives.

Conclusion

GPF  is a reliable and secure investment option for government employees, providing a safety net for their retirement years. With its flexible withdrawal options and the assurance of a lump sum payment upon retirement, GPF provides a reliable source of income during the golden years.