What Is Government Provident Fund: Know How it works & Benefits

Provident funds allow individuals to save retirement funds with monthly deposits and calculated interest. There are three types of provident funds, namely, the government provident fund (GPF), the public provident fund (PPF), and the employee’s provident fund (EPF). All three funds vary in their policies, eligibility, terms & conditions.

A Government Provident Fund is a type of provident fund. It’s basically a retirement savings plan designed to assist employees of the Indian government in setting aside funds for their retirement years. Private employees cannot contribute to this scheme.

This article will focus on the Government Provident Fund (GPF), its features, advantages, eligibility, and the steps involved in its application and management.

What is Government Provident Fund?

Government Provident Fund is a savings plus retirement scheme for the government employees of India. All government employees working at different sectors and levels are eligible to benefit from this scheme. People can contribute a certain amount of funds from their monthly salary.

The policy allows employees to save funds monthly and accumulate the funds and their interest for their retirement. Therefore, offering financial security at their elderly age.

These funds come with a secure guarantee backed by the government, ensuring a risk-free investment. Additionally, contributing to the GPF offers tax deductions as per Section 80 of the Income-tax Act. Moreover, the interest earned from GPF provident funds is exempt from taxation.

The Interest Rate of the Government Provident Fund

The Department of Pension and Pensioners’ Welfare in India consistently reviews and updates the interest rates for GPF (Government Provident Fund). Since its launch in 1968, the Ministry of Finance has regularly updated the interest rates to align with evolving financial needs.

  • Government employees across all sectors receive the same interest rates.
  • The interest rate for Government Provident Fund or GPF for the financial year 2021-22 is 7.1%. Reports indicate that over the last 15 years, interest rates have varied between 8% and 7%.

Government Provident Fund Features

  • The Department of Pension and Pensioners’ Welfare manages the GPF Provident Fund. The Ministry of Personnel, Public Grievances, and Pensions ensures transparent management of this department.
  • All government employees including temporary (after offering one year’s service), and permanent are eligible to subscribe to the GPF Provident Fund.
  • The subscriber of the GPF Provident Fund is required to make his/her family member nominee while filling out the prescribed form of the fund. Subscribers have the option to nominate one or multiple individuals for their fund. The subscriber also has the authority to determine the allocation of the payable amount among the nominees after their passing.
  • The subscribers of the GP Fund get an interest of 7.1% on their deposited money.
  • Upon their final working day within the government office, the funds from the GP fund are transferred directly into the subscriber’s account.

Eligibility criteria for GPF

Below are the eligibility criteria required to subscribe to the GPF Fund:

  • The government employee should be a resident of India.
  • Temporary government employees, including apprentices and probationers, become eligible to subscribe to the GPF fund after completing one year of service in the public sector.
  • Employees working in private sector companies are not eligible to participate in the GPF Provident Fund.
  • Government employees are required to contribute a certain amount of their salary to enroll in the GPF Provident Fund.

Steps to open a GPF Account

To initiate the GPF account, the following steps are undertaken

Step 1: Firstly, the eligible government employee needs to fill out the form for the GPF Fund.
Step 2: Afterward, the completed application form is submitted to the Accountant General of the respective state.
Step 3: After approval, the subscriber is issued an account number for their GPF account.
Step 4: Thereafter, the process for monthly deductions from the subscriber’s salary is specified. The deducted amount is made to the Drawing and Disbursing Officer.
Step 5: By the conclusion of the financial year, the subscriber receives the annual statement detailing the GPF fund activities, encompassing credits, debits (loans), accrued interest (at a 7.1% interest rate), and the closing balance.

The procedure for withdrawing funds from the Government Provident Fund

Some key points to understand the withdrawal process of the Government Provident Fund are given below:

  • The GPF funds reach maturity upon the retirement of the government employee. the accrued amount from the fund is credited directly into the individual’s bank account.
  • If the government employee has completed ten years of service in the public sector, then he/she can withdraw the accumulated GPF fund on account of several reasons i.e. marriage, education, medical treatment, construction, purchasing of consumer durables, travelling expenses, etc.
  • Withdrawal of the GPF fund amount is also permissible up to ten years before the date of retirement.
  • In cases where a government employee resigns before retirement, they are entitled to withdraw the amount from the GPF Provident Fund.
  • In case of the demise of the subscriber, the accumulated funds from the GPF fund are claimed by their nominated individual.

Difference between EPF, PPF & GPF

While EPF, PPF, and GPF fall under the Provident Fund category, they serve distinct purposes and cater to different segments of individuals. They are still different in many aspects. Understanding these differences will enable you to select the appropriate fund scheme that suits you and your lifestyle.

Below is a table outlining the differences among these three provident funds.

Parameters EPF PPF GPF
Abbreviation Employees’ Provident Fund Public Provident Fund Government Provident Fund
Eligibility criteria People working in any company that has 20 or more employees Include all the Indian resident individuals Only Government employees and workers
Interest rates 8.5% 7.1% 7.1%
Maturity Period Up to 58 years of age 15 year period Until retirement
Minimum Deposit Range 10% or 12% of the salary or INR 1800 INR 500 per year 6% of their monthly salary
Maximum Deposit Range Its voluntary no completion is made INR 1.5 lakhs per year 100% of their monthly salary
Premature Closure Being unemployed for more than 2 months Only after 5 years of maturity, for educational and medical reasons If the individual leaves their government job

Contribution amount of GPF

The Ministry of Finance has mandated a specific percentage of income to be allocated towards the GPF Provident Fund to ensure consistent contributions.

  • Employees are required to contribute a minimum of 6% of their monthly salary towards the GPF fund as a monthly contribution.
  • Contributions beyond the minimum requirement are voluntary, allowing employees to contribute up to 100% of their salary towards the GPF fund.

Advances of GPF Provident Funds

GPF funds allow their subscribers to take advances from the accumulated funds. Now, let’s explore the regulations and provisions regarding advances from the GPF fund.

  • GPF subscribers have the flexibility to request fund advances throughout their career, subject to specific conditions such as medical emergencies, marriage expenses, education, and housing needs.
  • Usually, the advances extended amount to approximately 12 months’ worth of funds or three-fourths of the accumulated amount, whichever is lesser in value. However, under particular circumstances, advances of up to 90% of the funds can also be granted.
  • The sanctioning authority must pay the funds to the subscriber within 15 days of the request. No supporting documents or additional procedures are necessary when applying for advances.
  • The provided advance is anticipated to be repaid through installments within a span of 60 months. Multiple advances can be taken throughout one’s career, and no interest is levied on these advances.
  • In cases where the subscriber requires further advances without completing the repayment of previous ones, the remaining balance from the previous advances is amalgamated with the new advance, and the subscriber is liable to repay the consolidated funds.

The GPF fund provides government employees with a simple means to save money. These savings serve as a safety net in case regular salary stops upon retirement. The GPF fund assists employees during their government service for diverse needs such as child education, marriage, home renovation/construction, travel expenses, medical costs, and more. Therefore, individuals aiming for a secure and stable future should consider subscribing to the GPF Provident Fund.