General Provident Fund (GPF) – Working, Features and Benefits

A Comprehensive Overview of General Provident Fund (GPF) 

In India, there are many mandatory and voluntary retirement-focused savings schemes available. These schemes are designed to help you save up for your post-retirement life and typically offer many benefits that are usually not available with other investment options. 

Among the different schemes available, the General Provident Fund is one of the most attractive. Continue reading to learn about this retirement-focused savings scheme, its key features, eligibility criteria and more. 

What Is a General Provident Fund (GPF)?

Launched in 1960, the General Provident Fund is a retirement-focused savings scheme for government employees. The primary objective of this mandatory scheme is to provide government employees with a source of income after they retire from service. 

Unlike the Employees Provident Fund (EPF), the contributions toward the GPF are made only by the employee. According to the terms of the scheme, employees are required to contribute to the fund each month until they retire or resign from service. 

The monthly contributions are automatically deducted from the salary of the employee and paid to the fund. Upon retirement or resignation, they may choose to withdraw the funds in the account partially or entirely and use it to take care of their expenses. 

How Does the General Provident Fund (GPF) Work?

Now that you’re aware of the concept of the General Provident Fund, here’s a hypothetical example to help you understand how it works. 

Let’s say that you’ve recently been inducted into government service. You’re enrolled into the General Provident Fund right from the time of induction itself. Your monthly salary is ₹65,000, and you choose to contribute 10% of your salary towards GPF, which is ₹6,500.

The amount of ₹6,500 is automatically deducted from your salary each month and deposited into your GPF account. This continues until you retire or resign from government service. The contributions you make towards the fund accrue interest at the rate specified by the government of India. 

Note: Currently, the GPF interest rate is 7.1% per annum for the October to December quarter of FY 2023 – 2024. 

Now, when you retire or resign from service, you can withdraw all of the contributions you’ve made towards your GPF account, including any interest that has accrued. 

How to Open a GPF Account?

Opening a General Provident Fund (GPF) account is straightforward for employees. First, they need to fill out an application form and submit it to their employer. Along with the application, they should provide essential documents, including their appointment letter, PAN card, and bank passbook.

After the employer reviews and approves the application, the GPF account will be officially opened. Following this, a fixed percentage of the employee’s salary, typically 6% of the basic pay, will be deducted each month and contributed to the GPF account.

Employees can easily monitor their GPF balance and review transaction details through their employer’s finance department, ensuring they stay informed about their savings.

GPF Contribution Amount For employees in Groups A, B, and C, the General Provident Fund (GPF) contribution is set at a minimum of 6% of their basic salary. However, employees have the option to increase their GPF deductions up to 100% of their basic pay.

For example, if an employee’s basic salary is ₹50,000, their mandatory GPF contribution will be ₹3,000 (which is 6% of ₹50,000). Alternatively, they can choose to contribute the full amount of ₹50,000 (100% of ₹50,000) each month if they wish to maximise their savings in the GPF.

GPF Advances General Provident Fund (GPF) advances allow employees to borrow against their GPF balance for specific needs. The rules for these advances may differ between government departments.

Employees can typically borrow up to 75% of their GPF balance or 12 months’ basic salary, whichever amount is lower. In exceptional cases, approval may allow withdrawals of up to 90% of the account balance.

Once a request for a GPF advance is made, it must be sanctioned and credited within 15 days. Notably, employees do not need to provide any documentation to claim this advance.

Repayment of the advance can be done over 60 months through monthly salary deductions. The absence of interest on GPF advances makes this option particularly appealing for those in need of funds.

Employees can request multiple GPF advances throughout their careers, even while repaying an existing advance.

Interest Rate of General Provident Fund (GPF)

The General Provident Fund (GPF) interest rate is set and reviewed annually by the government. For the financial year FY 2023-2024, the GPF interest rate is 8.15%. Every year at the end of the fiscal year, this interest is computed and credited to the employee’s GPF account.

Eligibility for General Provident Fund (GPF)

Eligibility criteria for the General Provident Fund (GPF) in India include:

• Central and specific state government employees are eligible for GPF.
• Employees must not be part of any other government or organisational provident fund scheme.
• Employees on deputation outside India are not eligible.
• A year of continuous service completed by temporary staff members qualifies them for GPF membership as well.

Maturity and Withdrawal Process of GPF

The process for GPF maturity and withdrawal is as follows:

• GPF matures when the employee retires or reaches the superannuation age.
• Employees can withdraw GPF funds after 10 years of service or if 10 years remain until superannuation, provided they have continuously worked in government service.
• Resigning employees can withdraw their GPF balance, regardless of service duration.
• Upon maturity, employees can withdraw the entire balance or choose a monthly pension option.
• If the employee passes away, the GPF balance is paid to the nominee or legal heir.

Difference Between GPF, EPF, and PPF

Key Features and Benefits of General Provident Fund (GPF)

The General Provident Fund offers several key features and benefits that make it stand out from other retirement-focused investment options. Here’s a quick overview of what they are. 

• Zero Risk of Default

Since GPF is administered by the Ministry of Personnel, Public Grievances and Pensions through the Department of Pension and Pensioner’s Welfare, there’s no risk of default. This makes it one of the safest long-term retirement schemes available in the country. 

• Variable Interest Rate

The GPF interest rate is not fixed. Instead, the government of India revises and notifies the interest rate applicable to the scheme every quarter. 

• Guaranteed Returns

Unlike other retirement investment schemes, the returns from the General Provident Fund are guaranteed and are not linked with the performance of the financial markets or any other metric.

• Flexibility in Choosing the Contribution Amount

With the General Provident Fund, you get the flexibility to choose the amount of contribution you wish to make each month. According to the scheme, the minimum contribution limit is 6% of your salary, whereas the maximum contribution is 100% of your salary. 

• Mandatory Nomination 

All subscribers are mandatorily required to nominate a family member at the time of joining the fund itself. The nomination can be modified later at any point in time during your service by filing an updated nomination form. 

• Partial Withdrawal Facility 

In the case of any emergencies, you can partially withdraw funds from your account even while you’re in service, subject to certain restrictions. If you’re employed with any state government, you should check the GPF withdrawal rules for state govt. employees before placing a partial withdrawal request. 

• Loan Facility 

You can also avail a loan against your GPF account balance to meet certain predefined expenses such as for education, marriage, house purchase or medical emergency. The maximum amount of loan you can avail is limited to 75% of your total fund balance or 12 months of your contributions, whichever is less. However, under certain special conditions, the GPF authority may choose to allow loans of up to 90% of the total fund balance. 

The loan is generally sanctioned and disbursed within 15 days from the date of placing the request and needs to be repaid within a maximum tenure of 60 months. One major advantage of this feature is that no interest is levied on the loan amount. 

• Additional Amount on Death of the Subscriber

In the case of the death of a GPF subscriber, an additional amount equivalent to the average balance in their account during the preceding three years is paid out to the nominee. The maximum amount under this rule is restricted to ₹60,000. That said, this benefit only applies to government employees who have crossed 5 continuous years of service. 

• Tax Benefits 

The contributions you make toward the General Provident Fund can be claimed as a deduction under section 80C of the Income Tax Act. The maximum amount of deduction per financial year is restricted to ₹1.5 lakhs. Furthermore, the interest that accrues on your GPF contributions is also completely tax-free.

Conclusion

If you’re a government employee, the General Provident Fund is one of the best long-term retirement schemes currently available in India. It offers guaranteed returns with zero risk of default and even offers the ability to avail loan against your GPF balance. 

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