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General Provident Fund: What is it and How Does it Work?

20-10-2022 |

Retirement is a crucial phase in your life – one for which you must start planning and saving from a young age. There are several ways to prepare for your retirement years. For example, you can buy life insurance plan to secure your loved ones, invest in stocks and bonds and others, or use pension schemes. Talking of the latter, the General Provident Fund is one of the many ways to accumulate cash over time for your older years. Find out more about this fund and how it works, so you can use it to secure your future. 
 

What is the General Provident Fund?
 

There are three types of provident funds in the country. These are:
 

  • Public Provident Fund (PPF)
  • Employees Provident Fund (EPF)
  • General Provident Fund (GPF)
     

The General Provident Fund is a type of provided fund in India that you can use for retirement savings. It is similar to the other two provident funds. However, it is specifically designed for government sector employees. This implies that private or public sector employees are not eligible to use it. 
 

If you are a government sector employee, you can use the General Provident Fund to plan your retirement. However, before investing in this tool, find out the different general provident fund rules, eligibility criteria, interest rates, and other important factors. 
 

How Does the General Provident Fund work?
 

The General Provident Fund (GPF) is a savings instrument managed by the Department of Pension and Pensioner’s Welfare which falls under the Ministry of Personnel, Public Grievances, and Pensions. It runs on contributions by employees. Once you open the account, you have to contribute to it regularly every month. You can stop your contribution only in the case of a suspension or three months prior to your retirement date. 
 

The account matures as soon as you retire, after which the entire corpus is credited to your bank account. You can then use it as you please to cover your retirement expenses. 
 

Eligibility Criteria for General Provident Fund
 

You must meet the following requirements to qualify for the General Provident Fund:
 

  • You must be an employee in the government sector. 
  • You must be a resident of India.
  • If you change jobs to the private sector, you will not be eligible to contribute to the fund. 
     
General Provident Fund Rules
  


Here are some rules for contributing to the fund:
 

  • Certain salary classes have to contribute to the fund mandatorily. 
  • You only need to contribute a certain percentage of your monthly salary to the fund.
  • You cannot contribute more than your income.
  • You are obligated to contribute to the fund unless you are suspended from work.
     
General Provident Fund Interest Rate
 

The General Provident Fund interest rate is set by the Government of India and may differ over the years. It can range between 7% and 8% as per the data of past years. At present, it is 7.10%. 
 

How to Open the General Provident Fund?
 

Here are the steps to open a General Provident Fund:
 

  1. First, fill out the concerning form with details like your name, work organisation, and other similar information.
  2. Attach personal documents like Aadhaar, PAN, and other identity proofs.
  3. Submit the form and proofs to the Account General (AG) office in your state.
  4. After your documents have been verified, an account number will be assigned to you.
  5. You can then start making monthly contributions to the Drawing and Disbursing Officer (DDO).
     
General Provident Fund Rules for Withdrawal
 

Here are the rules for withdrawal from the fund:
 

  • You can withdraw money from the fund before retirement only if you have been in the service for at least ten years.
  • You can withdraw up to 90% of the account balance in the case of a medical illness of your own or a dependent family member.
  • You can withdraw up to 75% of the account balance if you are buying a home, repaying a home loan, or covering the expenses of the reconstruction of a home.
  • You can withdraw up to 90% of the account balance up to two years before retirement.
     
Features of the General Provident Fund
 

Here are some features of the General Provident Fund:
 

  • Financial security: The fund offers an immediate payout upon maturity after retirement. It ensures financial security for retirees with a guaranteed1 payout. Moreover, the money is automatically transferred to your account without the need of submitting any applications or requests. 

  • Protection for loved ones: The fund allows you to nominate a family member when you open it. In the unfortunate event of the account holder's death, the accumulated balance is given to the nominee of the fund. 

  • Death benefit: In case of premature demise of the account holder, a death benefit is paid to the nominee over and above the fund’s total balance. This is equivalent to the average balance in the fund for three years, up to Rs. 60,000. In addition to this, the death benefit is only paid to families of account holders who have served for at least five years. So if you buy life insurance and save in the General Provident Fund, you can doubly secure your loved ones. 

  • Tax* benefit: Just like how life insurance plans in India offer tax* benefits under Section 80C of the Income Tax Act. 1961. You can claim a tax* deduction of up to Rs. 1.5 Lakh on your contributions to the General Provident Fund per annum, too. Moreover, your returns are also tax*-exempt on maturity. 
     
Conclusion
 

The General Provident Fund is a great savings option for government employees. So, make sure to use it to secure your future. Further, you can also use the Tata AIA Life Insurance Policy to save tax* under Section 80C of the Income Tax Act. Also, our life insurance plans will safeguard your loved ones and enable you to enjoy your life without any stress.
 

L&C/Advt/2022/Oct/2622

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry