ITR Filing 2024: How To Maximise Tax Savings With EPF Contributions

ITR Filing 2024: How To Maximise Tax Savings With EPF Contributions

Last Updated: March 22, 2024, 09:53 IST

In the EPF scheme, employees need to contribute 12% of their basic income each month, and their employer matches this amount

EPF is considered a low-risk investment because it is managed by the Government of India

If you are a salaried individual and want to ensure that you can handle your daily expenditures while maintaining your lifestyle, you need to save enough money for retirement. This is where you may benefit from the Employee Provident Fund (EPF). EPF is a savings scheme designed to help people build a nest egg for retirement. It was established under the Employees’ Provident Funds Act in 1952 and is now managed by the Employees’ Provident Fund Organisation (EPFO).

In the EPF scheme, employees need to contribute 12% of their basic income each month, and their employer matches this amount. When you retire, you receive the total amount (your contribution plus the employer’s) as a lump sum, along with interest.

EPF is considered a low-risk investment because it is managed by the Government of India, which guarantees a fixed rate of return. Around 8.33% of the employer’s contribution is allocated to the interest-free Employee Pension Scheme (EPS).

For instance, if your monthly basic salary is Rs 1,00,000 and your EPF contribution is Rs 12,000 (12% of your basic salary), you can claim a deduction of Rs 1,44,000 (12 x Rs 12,000) per year under Section 80C. This reduces your taxable income and lowers your tax liability.

The EPF not only gives members a dependable retirement fund source, but it also offers tax advantages. This enhances its long-term investment potential.

EPF is a desirable choice for retirement planning since Section 80C permits deductions of up to Rs. 1,50,000, allows for tax-free interest collection, and completely exempts withdrawals after five years from income tax, CEO and Co-founder of Tax2win, Abhishek Soni, told Mint.

Due to its special EEE (Exempt-Exempt-Exempt) tax benefit and guarantee of financial stability, EPF is a key element of effective retirement planning. The EPF offers a noteworthy advantage in the form of triple tax exemption on contributions, interest and withdrawals. This significant tax benefit makes EPF a desirable savings preference, Director of Acube Ventures, Ashish Aggarwal, told Mint.

You might possibly save money on taxes by contributing a percentage of your pay into a pension fund, which also lowers your taxable income. The whole amount of your EPF funds is not taxed when you withdraw it after retirement or voluntarily leave your work. This implies that there are no tax deductions, so you may still profit fully from your hard-earned funds.

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