The Employees’ Provident Fund (EPF) is a well-known retirement savings scheme in India, overseen by the Employees’ Provident Fund Organisation (EPFO). Under the scheme, the employer deducts a portion of an employee’s salary each month and puts it into a fund that earns interest. This money can be withdrawn after retirement. The employer contributes 12% of the basic salary plus dearness allowance to EPF and deducts another 12% from the employee’s salary; 8.33% of the employer contribution goes to the Employees Pension Scheme (EPS) which earns no interest.
For example, if your basic salary is ₹60,000 per month and your EPF contribution is Rs7,200 (12 per cent of basic salary), then you can claim a deduction of ₹86,400 (12 x ₹7,200) per annum under Section 80C. This will reduce your taxable income and subsequently lower your tax liability.
Beyond serving as a dependable source of retirement funds, the EPF offers tax benefits to its members, enhancing its appeal as a long-term investment
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“Employee Provident Fund (EPF), popularly known as the Tax Saving PF, offers a compelling proposition for salaried individuals seeking secure retirement investment. With Section 80C allowing deductions of up to Rs. 1,50,000, tax-free interest accumulation, and complete exemption from income tax upon withdrawal post five years, EPF presents a win-win scenario for investors. Its unique EEE tax advantage, coupled with the assurance of financial security, makes EPF a cornerstone in effective retirement planning,” said Abhishek Soni CEO and Co-founder of Tax2win.
Another important benefit of EPF is the tax exemption on contributions, interest, and withdrawal – a triple tax slash that makes a huge deal even out of the piece of padding! Installing a part of your salary into a pension fund does not only reduce your taxable earnings but it can also prevent high tax payments, said Ashish Aggarwal, Director, Acube Ventures.
“When the time comes to fall bill the EPF savings after retirement or voluntarily quitting the job, the entire amount is not taxed and so you can enjoy the fullest benefits of these hard-earned savings without the tax deductions,” added Ashish Aggarwal.
The EPFO has set a three-year high-interest rate of 8.25% on employees’ provident fund (EPF) deposits for 2023-24. Once approved by the government, this interest rate will be deposited into the accounts of over six crore EPFO subscribers.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 15 Mar 2024, 12:48 PM IST