How EPF Helps You Save On Tax

By Kishore Sabareeshan | January 24, 2019

The Employees’ Provident Fund is a blessing that not only helps you save money by default but also brings you generous tax benefits. Read on to find out more.

How EPF Helps You Save On Tax

It wouldn’t be wrong to say that a major part of the current generation is more focused on living in the moment than worrying about the future, and that’s not really a bad thing. However, this Carpe Diem philosophy sometimes detaches us from some conventional but good financial habits, such as saving money and being prudent about the outflow of our hard-earned money.

Thankfully, for those of us who work in a corporate setup, the Employees’ Provident Fund or EPF manages to overcome this detachment by making savings a sort of mandate.

What’s The EPF All About?

While most of you may already be familiar with an EPF account, we thought we’d start on a clear note by defining a clear understanding of it. Basically, the EPF scheme was introduced in 1952 with the aim to promote retirement savings among employees all over India. It works as a corpus fund that’s built by regular contributions from the employee as well as the employer.

With its latest upgrades, the EPF scheme has introduced a sense of convenience to its subscribers through the digital platform. With the introduction of the Universal Account Number and the online EPF portals, any employee can update, transfer and withdraw his or her EPF account in just a few clicks.

What’s more? Not everyone who has an EPF account fully understands its tax benefits. Want in on that? Read on!

Additional Reading: Everything You Need To Know About EPF

Your Contribution 

Typically, an EPF account functions in a way where a portion of your income is deducted and directed towards your EPF account. The contribution made by you every month towards your EPF is eligible for tax deduction under the Income Tax Act of 1961, up to a limit of Rs. 1.5 lakhs a year.

Your Employer’s Contribution

The other contributor to your EPF account is your employer, i.e, the company you work for. The total amount contributed by your employer towards your EPF account is tax exempt!

Tax-Free Interest

Another feel-good factor when it comes to your EPF account is that the interest you accrue on your EPF account over the years is tax-free!

Withdrawal Is Tax Exempt

As long as you meet the minimum requirement of a 5-year lock-in period on your EPF account, any withdrawal you decide to make will be tax-free. Now ain’t that great?

Additional Reading: Understanding The New EPF Withdrawal Rules

What if you do a pre-mature withdrawal?

Well, any withdrawal made before the completion of the 5-year lock-in period will not be tax exempt.

Additional Reading: The EPF Withdrawal Rules Just Got Cooler

The concept of tax has always been a rather intimidating one for individuals who have little interest in understanding it, so it’s understandable why many millennials especially don’t pay heed to matters such as tax benefits. However, thanks to the EPF scheme, tax benefits are a given if you’re an employee of a company that enables this provision, and that’s the beauty of it.

For the rest of the crowd that’s tax-enlightened, the EPF can act as a cherry on their cake of multi-layered tax benefits. Psst… did you know that the principal amount invested in a Home Loan is tax-deductible?

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