General Provident Fund

The General Provident Fund is an essential savings instrument for government employees in India that allows them to ensure financial security post-retirement. This comprehensive guide will look at what the General Provident Fund is, how it functions, and why it still features as a key element in retirement planning for those in public service.

What Is General Provident Fund?

The General Provident Fund (GPF) is a retirement savings scheme exclusively available to government employees in India. This fund helps you build a substantial corpus over your service tenure through systematic monthly contributions. It is essentially a mandatory savings mechanism where a part of your income goes into a fund that accumulates over time with interest.

GPF was established to provide financial security to government servants after retirement. The scheme comes under the Department of Pension and Pensioner’s Welfare, which is a part of the Ministry of Personnel, Public Grievances and Pensions.

Opening a GPF Account: Eligibility and Process

Creating a GPF account is a straightforward process that typically happens automatically at the time of joining government service. Here is how the process works:

• Check eligibility as a permanent or qualifying temporary government servant.
• Complete and submit Form PF-01 for GPF account opening along with the nomination Form PF-02 in triplicate to your Head of Department.
• Get forms attested by your department’s Drawing and Disbursing Officer (DDO).
• Receive your unique GPF account number for future transactions and balance inquiries.
• Begin monthly deductions from your salary at the applicable rate.
• Ensure your nomination details are correctly recorded for fund transfer in case of unfortunate events.
• Maintain the minimum required contribution (6% of basic pay) throughout your service.

GPF Operations: Understanding How the Fund Works

The functioning of the General Provident Fund follows a systematic approach:

Contribution Mechanism

A fixed percentage (currently a minimum of 6%) of your basic pay and dearness allowance is deducted monthly and deposited into your GPF account. You can voluntarily contribute more if you wish to increase your savings.

Interest Accumulation

One of the key benefits of the General Provident Fund is the competitive interest rate it offers. The interest rate is reviewed and announced quarterly by the government. The current rate is 7.1% per annum. 

Fund Management

The fund is managed by the respective Accountant General for state government employees and by the Central Government for its own employees. The amount collected is invested in government securities to generate returns that fund the interest payments.

Withdrawal Facilities

Partial withdrawals from GPF are allowed after 10 years of service for specific purposes like education, marriage, illness, or housing, with varying withdrawal limits. Up to 90% of the balance amount in the GPF can be withdrawn without stating any specific reason before two years of retirement.

Annual Statements

Account holders receive annual statements showing their contributions, interest earned, and withdrawals, helping them track their savings progress.

Key Features of the General Provident Fund

The General Provident Fund offers several advantages that make it a valuable financial tool for government employees:

Benefits of Investing in a General Provident Fund

• Tax Benefits: Contributions to GPF are eligible for tax deduction under Section 80C of the Income Tax Act (under the old regime). The maximum deduction available is ₹1.5 lakh per annum.
• Attractive Interest Rates: The interest rates are generally higher than regular savings accounts and are reviewed quarterly by the government.

• Zero Risk: Being a government-backed scheme, GPF carries virtually no risk of capital loss.
• Automatic Deductions: The contribution happens automatically through salary deductions, ensuring disciplined saving.
• Retirement Planning: It provides a substantial corpus at retirement, helping you maintain your lifestyle after your working years.

GPF Advance Rules

You can take temporary advances from your GPF account, which you need to repay through monthly instalments. These advances are typically granted for purposes such as:

• Medical treatment for yourself or your family: Up to 90% of your GPF balance can be withdrawn in case of illness of self or a dependent family member, with funds typically made available within 7 days.
• Housing needs: Up to 90% of your GPF balance can be withdrawn for purchasing a house, buying land for house construction, home loan repayment, renovation, or repairing an ancestral house.
• Other expenses: You are allowed to draw up to 75% of your GPF balance or 12 months’ emoluments (whichever is less) for the following purposes:
  • Higher education expenses for self or dependent family members.
  • Marriage expenses for self or dependent family members.
  • Vehicle purchase (car or motorcycle) or repayment of vehicle loan

No interest is charged on GPF advances, making them an attractive option compared to commercial loans. The maximum repayment period for temporary withdrawals is 60 months through monthly salary deductions.

GPF Withdrawal Rules

After completing 10 years of service, you become eligible for partial withdrawals that don’t need to be repaid. These withdrawals are permitted for specific purposes similar to those for temporary advances. 

However, when it comes to complete (or final) withdrawal, it is permitted in the following situations:

• Retirement: The maturity of the GPF account happens automatically at the time of retirement or superannuation, and there’s no need to submit an application for final payment from the fund.
• Resignation: If an employee quits the job at any stage, they become eligible to withdraw their entire GPF balance regardless of their service tenure.
• Dismissal/Removal: Similar to resignation, when an employee is dismissed or removed from service, they are entitled to receive their accumulated GPF balance.
• Death (payment to nominee): In the event of a subscriber’s death, the nominated person receives the full GPF balance plus an additional amount. This benefit is equal to the aggregate balance in the GPF account during the three years immediately before the death and is subject to a maximum of Rs. 60,000. To be eligible for this additional amount, the subscriber should have been in service for a period of five years.

The withdrawal process involves submitting the Form B to your department, which forwards it to the accounts division for processing.

Final Words

GPF remains one of the most secure and beneficial savings schemes available exclusively to government employees in India. Its guaranteed returns, tax benefits, and flexibility make it an essential tool for building long-term financial security.

Looking to diversify your investments beyond your General Provident Fund? Open a 3-in-1 account with Torus Digital today and take the first step towards a more diversified investment portfolio.