However, there are rules and exceptions to be checked. Suppose, if the aggregate amount exceeds the proposed limit, then the additional amount is taxable in the hands-on employee. One can claim tax deduction under section 80C up to a limit of 1. If the amount from PF is withdrawn at maturity, then no tax has to be paid.
However, suppose the employee withdraws any partial amount due to any emergencies. In that case, the amount will be taxable to the employee. EPF balance withdrawal is considered to be tax-free. As per the rule, there are certain exceptions based on the number of years of employment. Suppose the employee has not completed a consecutive five years of service. In that case, the amount withdrawn is taxable in the hands of the employee in the year of receipt.
The amount may remain tax-free in the following two exceptions. Therefore, it is always suggestible to transfer the PF balance while changing jobs to avoid any taxation. Suppose the employee has completed a consecutive five years of service.
In that case, the amount withdrawn is tax-free in the hands of the employee in the year of receipt. Every month a certain amount is deposited in the PF account. This amount keeps earning interest and forms a large corpus. At the end of the employment, a substantial amount is collected in the EPF account to help an individual to meet their financial needs during their retirement period.
Even though EPF is considered to be a retirement savings scheme, funds can be withdrawn in case of certain exceptions. Premature PF withdrawals are also allowed in case of financial emergencies. One can withdrawal only after a period of 5 years of completion of service. In the following examples where one can avail partial withdrawal:. EPF withdrawal is also available in case of unemployment while changing jobs. If an individual remains unemployed for more than two months, then one can withdraw the balance EPF amount.
In the case of unemployment, this feature can be used anytime. One need not wait for the completion of a certain number of years for withdrawal of EPF amount. Thus, these withdrawals can be claimed through the different composite forms that are available on EPFO e-portal. It is another savings scheme for building a retirement corpus. It is also known as the Voluntary Retirement Fund. Only salaried employees are eligible to invest in this scheme.
As the name suggests, VPF is a voluntary contribution from the employee towards their provident fund account. However, employees can do it voluntarily. Employers or employees do not need to contribute to this fund.
Also, this fund has a lock-in period of 5 years. In case, the contributor wishes to withdraw money fully or partially before completion of 5 years; then this amount is subject to taxation. Generally, when an employee retires or resigns from a job, the entire amount in the fund is payable. In case of the untimely death of the account holder, the nominee can claim the amount in VPF. The main benefit of this fund is that it allows withdrawals anytime. Furthermore, VPF also allows partial withdrawal as loans.
In case of any unforeseen financial circumstances, employees can withdraw from their VPF account. For instances, some of the reasons can be —. However, if one withdraws the amount before five years, then it is taxable in the hands of the employee.
Vice-versa, if one withdraws the amount after five years, the taxation is the same as EPF. Similarly, it falls under the EEE taxation regime. However, the exemption is only up to a limit of INR 1. The EPF scheme is one of the most popular and largest saving schemes in India for all salaried class employees. The following are a list of benefits of this scheme —. The investment amount and the interest income are exempt from tax. The amount accumulated also remains tax-free if withdrawn after completion of 5 years.
However, in case of premature before five years withdrawal, it will be taxable in the hands of the employee. The Government of India fixes the interest rate of this scheme. The contribution to this fund happens monthly. ET Financial Inclusion Summit. Malaria Mukt Bharat. Wealth Wise Series How they can help in wealth creation.
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