EPFO: Tax Exemptions To Secure Returns, Benefits Of EPF Beyond Saving For Retirement
The structure of the EPF guarantees that contributors are not dependent on others for their financial requirements.
The Employees' Provident Fund Organisation manages the Employment Provident Fund scheme, offering retirement benefits to salaried employees.
The government–backed scheme is a long-term savings plan aimed at providing financial security after retirement. Though the scheme is primarily seen as a retirement savings plan, it offers several other benefits, which could financially empower its subscribers.
Under the scheme, the employee contributes 12% of the basic salary and the dearness allowance every month to the EPF account. An equal amount is also contributed by the employer. The EPF interest rate is reviewed and finalised by the government each financial year. Currently, the EPF interest rate stands at 7.2% for FY 2024-25.
Apart from retirement savings, here are other benefits of EPF investment.
EPF Investment Benefits
Income Tax Benefits: The contributions to EPF accounts by the employee are eligible for tax benefits within the overall limit of Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. If the contributions to the EPF account by the employee surpass Rs 2.5 lakh in a financial year, the interest earned on the excess amount will be taxable. This amendment came into effect on April 1, 2021. Earlier, there was no such limit.
Retirement Savings: Contributors can create a sizable retirement fund with the EPF, guaranteeing them financial stability. Each month, the employer and employee each contribute 12% of the worker's basic pay and dearness allowance to the fund. Compound interest causes this sum to increase over time.
Insurance Coverage: Another important advantage of keeping an EPF balance is insurance coverage under the Employees' Deposit Linked Insurance plan. In the unfortunate event of the death of the EPF subscriber during the employment period, the nominee is entitled to receive the financial assistance up to 35 times the average monthly salary in the past 12 months, which is capped at Rs 7 lakh.
Higher Returns: The diversification of funds helps the EPFO to ensure a secure return for all the members enrolled under the EPF scheme. The EPFO allocates between 5% and 15% of its investible funds to exchange-traded funds (ETFs). Moreover, 45–50% of the PF funds must be placed in government securities, 35–45% in debt instruments and 5% will be allocated to money market and infrastructure trust investments.
The EPF scheme generally offers higher returns compared to savings bank accounts and many other small savings schemes.
Pension Benefits for Life
The Employees' Pension Scheme, which provides pension benefits after retirement, receives a portion of the employer's EPF contribution. After reaching the age of 58, workers with at least 10 years of service experience are eligible for a monthly pension. Superannuation pensions, early pensions, orphan pensions, widow or child pensions, nominee pensions, dependent parents' pensions and disability pensions are among the seven kinds of retirement benefits available under the plan.
The structure of the EPF guarantees that contributors are not dependent on others for their financial requirements, so it encourages retirement self-sufficiency and financial independence. These numerous advantages emphasise how crucial it is to keep a strong EPF balance as the foundation of one's financial management.
