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Typically, all salaried individuals contribute at least 12% of their salary to the Employees’ Provident Fund (EPF) account, and their employer matches the contribution. Employees can even voluntarily contribute up to 100% of their salary to EPF, but employers are mandatorily required to only match up to 12%. The contributions made to EPF then compounds at a rate declared by the Employees’ Provident Fund Organization (EPFO) every year. EPF earned an interest of 8.65% during financial year 2018-19.
Not only is the interest that EPF offers usually higher compare to other fixed income instruments, contribution of up to ₹1.5 lakh to your EPF account also qualifies for tax deduction under Section 80C of the Income Tax Act, 1961. The interest accrued is tax free only after five years. If you keep your EPF investment intact till retirement, what you get on retirement is completely exempt from tax. But remember that if you delay withdrawing your EPF corpus, any interest earned on the EPF balance post retirement is taxable.
Income-Tax Appellate Tribunal (ITAT) changed some misconception in relation to Tax on EPF after resign, retire or terminated. Because earlier it was believed that amount received is a fully exempt tax on EPF after resign, retire or terminated in case of an employee who is in continues service for a period of 5 years or more. Full exemption is also available for employees who not completed 5 years because of his ill health, discontinuance of employer’s business or any other reason which is not in control of the employee. If the account is transferred to the new employer then the previous service from whom the account is transferred is also considered as a service period.
As per EPFO rules, the retirement age is 55 years. If you do not withdraw the money within 3 years from the attainment of the age of 55 years, then such accounts are called as Inactive EPF accounts.
Now as per the clarification from Ministry of Labour, your account will fetch the regular interest up to the age of 58 years. Whether you contribute to it or keep it idle, EPFO will credit to such accounts as long as you turn 58 years of age.
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