How Can I Make The Most Of My EPF Account?

Employees' Provident Fund (EPF) is an obligatory contribution to be deducted from the salary of its employees from any organisation with more than 20 employees. The employee contributes 12 per cent of the salary to the EPF, while the employers contribute an equal amount. Based on the amount accumulated, employees can receive pensions after retirement. Many of them have a profession that typically lasts 40 years. If the PF is deducted and accumulated over the span of 40 years, the compounding effect can be measured. Employees can make the most of the EPF account and maintain a retirement life without burden through the following ways.

Should I Withdraw My EPF Amount?

It is advised that PF amount not be withdrawn before retirement. At the time of retirement, PF leads in an enormous corpus. That being said, if withdrawn in between, it should be deposited in instruments such as a real estate, land or mutual fund that yield better returns, analysts claim. Regrettably, most employees withdraw PF for some emergencies and end up with no savings for themselves during retirement. In the new regulations, PF does not need to be withdrawn once an employee switches a job, it can be transferred to the new employer.

How Can I Reap Better Returns From EPF?

The interest rate for the Provident Fund (PF) is calculated and updated annually. The interest rate for the Provident Fund (PF) is calculated and updated annually and investors do not have a say in this. However, to fetch more returns, one should increase their contributions. This can be accomplished in two ways: by improving the criteria on which PF is funded or choosing for a higher contribution amount on a voluntary basis. Typically, PF is contributed from basic salary and if you should increase your contribution towards EPF the returns based on the accumulations in the PF account will increase too. Conversely, a member can opt to contribute at a rate higher than the 12 percent of the prescribed rate.

These will result in increased accumulations in the account of the account holder, hence getting more returns. On a recent confirmation after receiving the approval of the finance ministry, the labour ministry has agreed to disclose 8.5 percent interest rate on employee's provident fund (EPF) accounts for 2019-20. On its more than six crore members, EPFO kept an 8.5 percent interest rate on EPF for 2019-20 as previously agreed, and also started crediting the same into the account of the employees. A substantial majority of the members of EPFO will be able to see their modified EPF accounts with credit of 8.5 per cent interest for the financial year of 2019-20.

Let's Learn About Tax Exemption On PF Withdrawal

Except under such rare instances above his or her ability, when an employee withdraws the amount from his EPF (Employee Provident Fund) account before making a five-year contribution to his Provident Fund account, the withdrawn money appears taxable in the employee's account. In the event that the balance in the old provident fund account is transferred to the current PF account configured with the new employer, the contributions rendered to the previous employer shall also be taken into account while the five-year contribution duration is calculated.

When you withdraw the funds before making an annual contribution for five years, if the total balance of the accumulated sum is more than 50,000, the provident fund office deducts tax at 10 per cent. As outlined by you, the accumulated amount which becomes taxable in your account has four components. Under the head "Salaries" the contribution of the employer and interest earned on such contribution must be presented. Under the head "Income from other sources" the contribution of the employee as well as the interest accrued on such contribution will become taxable.

As there might be any discrepancy between the amount provided as taxable by you and the amount provided under your 26AS form, you may get a notice from the tax department that you can justify with documentation that you have not received your own contribution benefit under Section 80 C with the aid of your income tax returns and other relevant documents for the subsequent year.