Now that the tax on your EPF corpus as well as employer’s contribution has been rolled back, here’s a quick guide to understanding your EPF and what happens from FY 2016-17 onwards.
What is EPF?
Employee Provident Fund is
– a contributory social security scheme
– applicable to companies with 20 or more employees
– threshold on contribution is Basic salary of Rs 15,000
How does it work?
– presently, employee contribution to provident fund is 12% of Basic salary
– matched by employer* [* 3.67% to EPF, 8.33% to EPS (Employee Pension Scheme)]
– employer contribution is usually part of CTC
– total amount earns interest, interest rate notified by Govt each year
– both EPF and EPS amounts paid out separately during withdrawal
– rate of interest is currently 8.8% for FY 2015-16
– after 5 or more years of continuous service
– after attaining the age of retirement (presently 58)
– if unemployed for two months or more after leaving previous job
– for marriage, higher studies, house construction/purchase
– for medical emergencies
Tax on EPF
– tax applicable if withdrawn before completion of 5 years of continuous service
– no tax if withdrawn after 5 years or upon retirement
– tax status is EEE (Exempt at all stages – contribution, accrual, withdrawal)
– only employee contribution and accrued interest on it can be withdrawn prematurely
– employer contribution stays in your EPF account
– this can be withdrawn only upon retirement, at 58 years of age
Tax on EPF
– proposal to tax 60% EPF corpus on withdrawal has been rolled back
– proposal to tax employer contribution above Rs 1.5 lakhs has been rolled back
– tax status stays EEE (Exempt during contribution, accrual and withdrawal)
More information on EPF and EPS is available on the EPFO website.
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