Employee Provident Fund (EPF) u/s 80C

In my previous article I have listed down the investment proofs needs to be submitted for this financial year 2011-12. I would be writing in detail about the each topic. This article explores the details of employee provident fund (epf) and how it can be used to show an tax exemption component. It is compulsory deduction on your salary and many don’t consider this while computing their total investment needed for the tax exemption. If you have any doubts, please post it in the comments section. Please subscribe to our future articles here.

Section 80C

As we know that there is maximum of Rs.100000 can be invested for the tax exemption under section 80c. This includes various investments like Life Insurance, Home Loans, Health Insurance, Public Provident Fund (PPF), etc. These investments has to be invested by you and submit the proofs while end of the year. But, EPF is compulsory deducted by every employer for their employees to save for their retirement planning. By default, EPF savings fall under the section 80c’s Rs.100000 category.

When you are planning to invest Rs.100000 for this year to utilize the section 80c, you must include your contribution towards EPF and plan your investment.  For example, your employer is deducting Rs. 3000 for every month towards EPF, your yearly contribution would be Rs.36000 (3000 x 12). In this case, under section 80c you are left with Rs.64000 (Rs. 100000 – Rs. 36000) for the tax exemption investments. You are not required to submit the proofs for EPF, since your employer would calculate and send to the govt.

What is EPF?

also read

• Invest in EPF for retirement planning
• EPF Balance Information on SMS
• EPF Transfer and Opening PPF Account
• EPF (PF) Transfer and Form 13

The above section explains the tax computation part using the EPF. This section explains the EPF and what are the benefits. The following are points you must know about the EPF:

• Interest rates for employee provident fund (EPF) is 9.5% monthly cumulative. It is the best investment avenue for low risk category.
• Minimum 12% of your basic salary would be deducted towards EPF. Also, you can increase your EPF investments by submitting the declaration form.
• If your salary is above Rs.6500 per month, then you would be eligible for the EPF deduction.
• Interest income on provident fund is not taxable.
• When you are switching your job, you can transfer your EPF to your new employer by submitting the form 13. If you would like to withdraw your savings, you have to submit the form 19.
• If you are withdrawing EPF before the five years, the amount is taxable.
• The maximum amount can be shown under tax exemption is Rs.100000
• You can find more details in the official site.

Summary

I hope this would have given the basic idea on EPF and its benefits. It creates the lump sum corpus for your retirement and helps in saving the tax. But, make sure that you are not withdrawing or closing the EPF account. The power of compounding is important for your long term goals. If you have any doubts, please post it in the comments section.

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