EPF Archives -

What is the Difference Between Taxable and Non-Taxable EPF?

Tue, 21 Jun 2022 13:31:59 +0000

The Buyt Desk

After the new rule on taxes on EPF, employees earning high salaries need to think twice before contributing more than Rs 2.5 lakh towards their EPF account.

In Budget 2021, new rules on taxation related to EPF contribution were announced. Now the employees contributing over Rs 2.5 lakhs per annum towards EPF will feel the pinch. The central government has declared the interest rate on employees’ provident fund (EPF) contributions of 8.1% for the financial year 2021-22. And this is the lowest to date. After this came another announcement of levying tax on the interest earned through the EPF account which was tax-free to date. Even now if the annual contribution is below Rs 2.5 lakh then the interest earned is tax-free but if the contribution to EPF is more than 2.5 Lakh then the excess contribution will be taxed. Both these announcements are not good news for employees contributing a heavy amount to EPF.

What are taxability rules on EPF?

In the Budget of 2021, it was declared that the interest earned on Employees’ Provident Fund contributions above 2.5 lakh will be taxed. Till March 2022, EPF was tax-free be it an investment, interest earned or even at maturity. Now on

What is a taxable and non-taxable account?

The Central Board of Direct Taxes (CBDT) says from now on the EPF statement will consist of 2 parts one being a taxable account and the other being a non-taxable account. And this is important for salaried people who contribute more than Rs 2.5 lakh per annum towards EPF/ VPF. Anything below Rs 2.5 lakh annually will not make any difference as it will be tax-free. All depositions made over the financial year which is less than Rs 2.5 lakhs come under a non-taxable account and any amount above Rs 2.5 lakh falls under a taxable account. The interest earned by a non-taxable account is tax-free whereas interest earned by a taxable account is taxable. Annually, at the end of the financial year, TDS is deducted from the interest earned by the taxable account before crediting the interest to the taxable account. When PAN is available, TDS is 10% else it is 20%. And TDS is 30% for non-resident employees (NRIs).

For non-taxable accounts, the business is as usual as the new taxation rule is not applicable. This rule is effective from April 1, 2022. At the end of the financial year, both taxable and non-taxable accounts will have a closing balance and the same will continue year on year. Every year where the deposit is above Rs 2.5 lakh, the balance of the taxable account increases and at the end of the financial year TDS is deducted before crediting interest. The employee will just deposit as he/ she did till now. All the calculations, the bifurcation between taxable and non-taxable contributions, interest and TDS workings will happen at the EPFO end. The segregation part is not an employee’s issue. At the start of every new financial year, the monthly deposits go to a non-taxable account until it reaches the mark of Rs 2.5 lakh and after that deposits go to a taxable account.

How will the taxable account work?

When your contribution exceeds Rs 2.5 lakh during the financial year, the taxable account comes into the picture. The excess (anything beyond Rs 2.5 lakh) deposit will go to a taxable account till the end of the financial year. The annual interest earned by a taxable account is deducted with TDS and then the deducted interest is added to the taxable account. The balance along with deduced interest added becomes the closing balance for the current financial year and the opening balance for the next financial year. The TDS on the interest of taxable income doubles if the employee has not furnished the PAN.

How will this new rule impact income tax filing?

If the employee has a balance in the taxable account of EPF, then there will be a tax deduction at the source. TDS can be either 10%, 20% or 30% based on different categories as discussed above. Though the TDS component is pre-populated in the income tax return forms, just be careful to recheck it. You need to take into account the interest earned through a taxable account under ‘Income from other sources and this will be taxed as per your tax bracket (slab). Not considering this component of a taxable account may lead to getting queries from the IT department.

How will withdrawals be treated and taxed for the same?

Any withdrawals made at any time of the year will be first deducted from the taxable account, only once the taxable account is exhausted, funds from the non-taxable account will be withdrawn. This rule is made so that employees will have less burden of the tax. Non-taxable is untouched during withdrawals until the taxable account has no balance.

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Can You Pre-maturely Withdraw Money From Your EPF Account?

Sat, 28 Aug 2021 06:16:26 +0000

The Buyt Desk

The Employees Provident Fund (EPF) is a retirement saving scheme for salaried employees managed by the Government of India. The EPF is a mandatory contribution which an employee and his/her employer makes towards the reitrement corpus. In this scheme, an employee contributes 12% of his basic salary every month and the employers also contribute the same amount every month. The government gives interest on the accumulated amount every month. The current rate of interest in EPF is 8.50%. Upon retirement, the employee receives a lump sum amount which turns into a handsome corpus if allowed to grow.

But, in case of emergencies, one can withdraw money from the provident fund. It is permitted to partially withdraw money from EPF to deal with an emergency.

How Much Money Is Withdrawable From EPF?

Employee Provident fund is a kind of investment scheme that aims to give a secure retirement to investors, and it works on compounding interest. Thus, experts recommend not withdrawing EPF until there is a complete emergency. And it is imperative here to note that PF drawn off within five years of account opening is taxable. Let’s check the condition for the premature withdrawal of amount:

Medical Emergencies

If there is any medical emergency in the family, either with the investor or his family members, including parents or children, one can withdraw from EPF before the set time. In this condition, the withdrawal amount would be either six times the monthly salary of the investor or lesser (the entire contribution of the employee). There is no minimum service tenure required for this withdrawal.

Wedding

The withdrawal of PF is permitted for the wedding as well. The investor could withdraw 50 per cent of his contribution along with interest. However, the condition for this withdrawal is that the investor must have contributed to EPF for seven years.

House Renovation

An investor can partially withdraw money from EPF account for home renovation. In this case, the investor could draw out 12 times their monthly salary along with interest. The condition for the same includes the investor could apply for withdrawal only after five years of home construction.

Buying Or Constructing a House

The fourth condition when premature PF withdrawal is doable is when the investor is buying a house. For this reason, the person could withdraw up to 90% of the deposited amount along with interest. The condition for this is the investor must have contributed to PF at least for five years.

Home Loan – For the repayment of a home loan also, an employee can withdraw PF partially. In this condition, 90% withdrawal is possible. The condition is that the employee must have contributed to PF for three years.

How To Withdraw Money from EPF?

Other than the benchmarks, the withdrawal amount needs approval and attestation from a gazette officer as well. The EPFO department gives the option to withdraw the amount both offline and online.

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EPFO Allows COVID-19 Advance Withdrawal From EPF Account

Wed, 02 Jun 2021 03:38:39 +0000

The Buyt Desk

To help people deal with hardship caused by COVID-19’s second wave Employee Provident Fund Organisation (EPFO) has allowed non-refundable advance. EPFO had allowed a similar withdrawal window last year as well when the first wave of COVID 19 had hit. Till now EPFO has settled 76.31 lakh COVID 19 advance claims and disbursed a total of Rs 18,698.15 crore. This provision of advance withdrawal was introduced in March 2020 under Pradhan Mantri Garib Kalyan Yojna.

The reason behind extending the provision of advance claim

The Labour Ministry said in a statement “During the second wave of Covid-19 pandemic, ‘mucormycosis’ or black fungus has been declared an epidemic recently. In such trying times, EPFO endeavours to lend a helping hand to its members by meeting their financial needs,”

How much can you Withdraw?

The EPFO member can withdraw basic salary plus the dearness allowance of 3 months or 75% of the accumulated amount in the account whichever is less. Members can apply for a lesser amount as well. This step will be of immense help to the salaried class. In times of health crisis and financial crunch, they will be saved from taking any additional loan to meet any unseen expenses.

The Advance Claim Settlement Process

Once the claim is made the EPFO will settle these advance claim within three days of the receipt. To ensure this EPFO will have a system driven auto-claim settlement process. The members should have fulfilled all the KYC procedure of their account.

EPFO allowed its subscriber to withdraw money on certain conditions like illness or for buying a house. Now EPFO subscriber can withdraw money for COVID-19 related stress as well. The Ministry of Labour has made an amendment to the Employees’ Provident Funds Scheme by inserting therein sub-para (3) under paragraph 68L, through a notification in the Official Gazette.

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What Should You Do To Your EPF Account When You Change Your Job?

Sat, 24 Apr 2021 06:45:58 +0000

The BuyT Desk

Most of the salaried professionals have EPF (Employee’s Provident Fund) as an investment but usually, they lack complete knowledge about it. Most people do not keep a record of their investments or track them properly. EPF is a small saving scheme to ensure that while you toil for years in your job, a corpus is ready for you when you retire. You can contribute a maximum of 12% of your basic salary towards EPF. Your employer will make an equal contribution to your EPF account. However, it is possible for you to contribute as much as you desire via VPF (Voluntary Provident Fund). Earlier, EPF belonged to EEE (Exempt Exempt Exempt) tax category, but as people started parking extra funds in EPF to enjoy the tax benefit, the Government came up with a plan. Now, the interest earned on a contribution above Rs.2.5 lakhs in an EPF account will be taxable. Among all the small savings schemes, EPF provides the highest returns. The current rate of interest is 8.50%. The scheme matures when you reach the age of 58 years. It is eligible for tax deduction up to Rs.1.5 lakhs under section 80C of the IT Act.

What happens when there is a break in your EPF contribution? This could happen you have left your job for any reason whether to join a new company, to begin your own business, or to relocate abroad. The first thing to understand is that the corpus in your account will continue to earn tax-free interest (until the age of 58 years) even without any new contribution. However, the moment you turn 58 years old (retire) or resign from your job or your employment ends, the interest earned henceforth is taxable. Also, note that in case you retire before the age of 58 years, you can withdraw the accumulated corpus from your EPF account within 36 months. If you fail to do so, then the account becomes inoperative and you do not earn any more interest on the accumulated funds.

Here, we talk about the possible options you can make w.r.t. your EPF account after changing your job:

Add the new EPF account to the same UAN (Universal Account Number): As the name suggests, UAN is a universal number. It remains the same even when you join a new company. The finance department of the new company can simply add the new EPF account under the same UAN. You can easily transfer the balance online from the old EPF account to the new one.
Open a new EPF account under a new UAN: In the case, a new EPF account has been opened under a new UAN, your previous service years will not be added to the new account. It is best for you to merge both the UANs and transfer the previous account balance to your new EPF account.

c.Withdraw the accumulated corpus: Of course, you have the option to withdraw the balance accumulated in your EPF account but this forfeits the purpose of having a retirement corpus.

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Will the Tax on Increased EPF Contribution Impact You and How Does VPF Works?

Fri, 12 Mar 2021 13:10:04 +0000

The BuyT Desk

The government is planning to impose a tax on the Employee Provident Fund contribution. If one makes a contribution of more than Rs 2.5 lakh annually in their Employee Provident Fund (EPF), the interest earned on contribution over and above Rs 2.5 Lakh will be taxed. So does that mean that EPF has lost its tax-free charm? As compared to other investment Employee Provident Fund still remains to be getting a higher interest as compared to any other small saving investment or the banks fixed deposits. Interest on EPF at present is 8.50% and Employee Provident Fund Organisation has also recommended the government to maintain the same interest for the FY-21-22 as well. The tax on increased contribution will impact high salary earners who could contribute more to their EPF. Government is clear if you can contribute more than Rs 2.5 Lakh in a year then you can very well pay tax on your increased contribution.

How can one increase their contribution to EPF?

Voluntary Provident Fund (VPF) is the answer. If you want to invest more in your employee provident fund then you can do it through the VPF. An employee’s PF contribution can not exceed more than 12 % of his/her basic salary and DA. The employer also contributes exactly the same i.e 12%. However, you can increase your contribution through VPF (Voluntary Provident Fund). If an employee wants to increase his/her contribution to more than 12% of their basic then they can do so by opting for VPF. An employee contribution can go up to 100% of his /her salary through VPF.

How to start VPF?

Employees will have to contact the HR of their company to take advantage of the Voluntary Provident Fund. He/She has to inform the HR department of their respective company requesting them to increase their contribution to EPF. If the company offers VPF service, HR will complete the further process according to the company’s policy. The VPF is usually attached to the employee’s existing EPF account. It can be selected at the beginning of the financial year. The contribution of VPF can be revised every year.

How does VPF work?

– The interest in VPF is the same as what you get on your EPF.

– VPF also gets tax exemption under section 80C of the income tax act. The investment made in the VPF account also comes in EEE category. In this, the money received on completion of investment, interest and maturity period is completely tax-free.

– VPF passbook can be viewed online. Also, a claim can be made online for withdrawal.

– VPF account also has a lock-in period, which is till the retirement or resignation of the employee.

– For the partial withdrawal of the amount from the VPF account, it is necessary for the account holder to do a job for 5 years, otherwise, the tax will be deducted.

– The entire amount of VPF can be withdrawn only on retirement.

– VPF funds can also be transferred like EPF if you change jobs.

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EPF VS NPS- How Do They Differ?

Mon, 30 Nov 2020 12:54:32 +0000

Priyanka Sambhav

To sail through retirement years, all of us must have a financial plan. We plan for all expected and unexpected expenses – like health emergencies, higher studies, marriage or vacation. But have you planned your pension? If not, then you must start now so that you have a comfortable post-work life.

Employee’s Provident Fund (EPF) and National Pension System(NPS)- are two basic investment tools which should be a part of your investment plan. If you are a salaried person, then in all likelihood you would have an EPF account. The employer and the employee both contribute to EPF, and the employee builds a corpus till he/she retires. But given the condition that jobs nowadays are on shaky ground and if you are dependent on an EPF, then a job loss would mean that the EPF may stop till you find another job. For a situation like this, one must consider a pure pension focused investment like the NPS. Both EPF and NPS promises a retirement corpus, but the approach with the investment is different. Let’s understand the key differences between the two.

How is retirement fund created in Employee’s Provident Fund (EPF)?

An employee makes a minimum contribution of 12 per cent of their salary per month. At the same time, the employer also matches the contribution and contributes up to 12 per cent of the employee’s basic wages. The employer contributes 8.33% towards employee’s EPS (Employee Pension Scheme) and the remaining 3.67% towards EPF. The Employee Provident Fund Office (EPFO) pays a quarterly interest on the PF account of an employee. The PF investment goes in debt instruments.

How is retirement fund created in the National Pension System(NPS)?

NPS is a voluntary, defined contribution scheme. You have to invest up to the age of 60 years. An investor opens an NPS account on their own through banks or eNPS portal. The minimum contribution for NPS is Rs 500 in Tier I and Rs 1000 in Tier-II accounts. There is no maximum limit for NPS account. NPS is a market-linked product, where the performance of your portfolio will depend on the fund you choose. The funds’ performance will mirror the performance of equity and debt markets. NPS offers three options of investment – equity, corporate debt and government bonds.

Maturity & Withdrawals

The EPF matures when the investor attains 58 years of age. The full amount can be withdrawn post 58. Partial withdrawals are allowed under certain circumstances such as house construction, education, medical issues, etc. but only up to a particular limit. In case of unemployment if an individual remains unemployed for one month he/she can withdraw 75% of the corpus and the balance 25% can also be withdrawn if the member remains unemployed for more than two months.

An NPS subscriber can withdraw a lump sum of 60% from their corpus when he/she reaches the age of 60 years. The remaining 40% gets invested in an approved annuity plan. NPS allows three partial withdrawals but only after three years of account opening. Withdrawals can be made for specific issues like health, education etc. These withdrawals can’t exceed 25% of your contribution.

Taxability of EPF and NPS

EPF gives you EEE (Exempt Exempt Exempt) benefit, not only the accrued interest but also the withdrawal of maturity is tax-free. The investment made up to Rs 1.50 lakh allows you Section 80C deduction of the IT act.

NPS subscribers also enjoy tax-exemption up to the limit of Rs 1.5 lakh under section 80CCD(1) of the IT Act within the overall ceiling of Rs 1.5 lakh allowed under Section 80C. In addition to this , section 80CCD 1 (B) tax-exemption of up to Rs 50,000. The employer’s contribution made towards employees’ the NPS account, will give deduction under section 80CCD (2), of up to 10 per cent of the basic salary plus dearness allowances.

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