EPFO Latest News: Huge good news for PF customers Rs.3.3 crore guarantee fund. How to get..?
Employees Provident Fund Organization (EPFO) offers an attractive investment and retirement scheme through Employees Provident Fund (EPF) and Voluntary Provident Fund (VPF) options. These schemes are designed to ensure a financially secure and smooth retirement for private sector employees. Currently, the attractive interest rate on EPF deposits is 8.25%. How these schemes work and how an employee can get Rs. Here are the details on how one can efficiently collect the corpus. 3.3 crores on retirement.
EPF and employer contributions
Under the EPF scheme, both employees and employers contribute to the fund. The contributions are as follows:
- Employee’s Contribution: 12% of the employee’s basic salary is automatically deducted every month and credited to the EPF account.
- Employer Contribution: Employers also contribute an equal amount i.e. 12% of the employee’s basic salary to the EPF. However, this contribution is divided into various parts, a portion of which goes towards the Employee Pension Scheme (EPS).
In total, a substantial amount is set aside every month, which, with the benefit of compound interest, can grow significantly over time.
Voluntary Provident Fund (VPF)
VPF is an extension of the EPF scheme, allowing employees to voluntarily increase their retirement savings. Key points of VPF:
- Additional Contributions: Employees can opt for contributions beyond the standard 12% by enrolling in VPF. It is beneficial to enable the employees to avail the benefit of a higher EPF interest rate.
- Interest Earnings: Similar to EPF, VPF contributions earn interest at the prevailing EPF rate, which currently stands at 8.25%.
Tax benefits and withdrawal rules
Both EPF and VPF offer tax benefits and flexible withdrawal options:
- Tax-Free Withdrawals: VPF subscribers can withdraw the accumulated amount tax-free after completing a minimum tenure of five years. In case of retirement, resignation or death of the account holder, the nominee will receive the accumulated funds in the same way as EPF.
- Advance withdrawals: Funds can also be withdrawn from VPF for certain financial needs including medical expenses, marriage, education or property purchases.
- Tax on Interest: Earlier, the interest earned on EPF was completely tax-free. However, as per the new rules, only Rs. Only interest earned on contributions up to 2.5 lakh per annum is tax-free. This limit applies to both EPF and VPF.
Tax exemptions under section 80C
Contributions to EPF are eligible for tax deductions under Section 80C of the Income Tax Act:
- Contribution Limit: Employees Rs. Rs. 1.5 lakhs per financial year to avail tax deductions under Section 80C.
- Tax-Free Donations: Rs. Donations up to 2.5 lahks per annum in EPF and VPF are tax-free.
- Maturity Amount: Withdrawal from the provident fund and maturity amount are also tax-free subject to certain conditions.
Rs. Assembling a corpus. 3.3 crores
One of the most attractive aspects of EPF and VPF schemes is the opportunity to accumulate a substantial corpus for retirement. An employee Rs. Here’s how to stack up. 3.3 crore over 30 years:
- Monthly Contribution: An employee can pay Rs. 20,833 per month, which is Rs. 2.5 lakh per annum, combined with EPF and VPF, the annual interest rate of the fund will grow at 8.25%.
- Effect of Compounding: Over 30 years, thanks to the power of compounding, this contribution will be around Rs. 3.3 crores.
- 20-Year Projection: Even with a short investment tenure of 20 years, the corpus can reach an impressive Rs. 1.27 crores.
Benefits of Investing in EPFO and VPF
Investing in EPF and VPF offers multiple benefits:
- Higher interest rate: EPF and VPF offer higher interest rates (8.25%) as compared to other traditional savings instruments, which ensures strong growth of funds.
- Tax Benefits: Contributions to EPF and VPF are eligible for tax deductions and interest earned is tax-free up to a specified limit.
- Retirement Security: An accumulated corpus provides financial security during retirement, allowing individuals to maintain their lifestyle and meet any unexpected expenses.
Important considerations
While EPF and VPF are excellent options for building a retirement corpus, it is important to remember the following:
- Investment Tenure: A longer investment tenure increases compounding benefits. Hence, starting early leads to a larger corpus.
- Contribution flexibility: While EPF contributions are mandatory, VPF contributions are voluntary, giving employees flexibility in how much they want to save.
- Withdrawal Rules: It is advisable to avoid premature withdrawals to ensure that the retirement corpus remains intact and grows over time.
Employees’ Provident Fund Corporation (EPFO)
EPFO’s EPF and VPF schemes are powerful tools for private sector employees to build a substantial retirement corpus. By making regular contributions and taking advantage of the high-interest rate, employees can potentially save up to Rs. 3.3 crores in 30 years. This ensures a financially secure and comfortable retirement without financial worries. Employees are encouraged to consider these schemes as part of their long-term financial planning strategy.