EPF: A better tax-saving instrument with higher returns for salaried individuals

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EPF: A better tax-saving instrument with higher returns for salaried individuals
With the declaration of a higher interest rate of 8.75% for the financial year 2013-2014 on EPF contribution, EPF proves to be the highest yielding investment option among other tax-saving investment options, including PPF that is currently offering 8.7% in contrast to the previous return of 8.8% on an annual basis.

Other tax-saving option that offers return higher than EPF is the 10-year NSC that is offering a return of 8.8% in the current fiscal year. However, the interest on NSC is exempt from tax payment only until first five years when the interest is reinvested in the saving scheme. After 5 years tenure, investment in NSC attracts tax liability. Bank tax saving FDs offer higher interest rates, but are not tax efficient.

Every month you and your employer contribute a sum equivalent to 12% of your salary towards the EPF account. The sum contributed by you can be claimed as deduction upto a maximum value of Rs. 1 lakhs under section 80C. On the other hand, of the 12% that your employer contributes towards your EPF corpus, 8.33% is contributed into the Employees' Pension Scheme or EPS while the balance amount earns you return as declared by the EPFO each year. For other facts you should know about EPF. Click here.

Apart from tax-deduction that can be claimed against your contribution towards the account, interest accrued or earned as well as the corpus amount realized are both exempt from tax in case the provident fund kitty is encashed after a period of 5 years of continuous service with the employer.

And as interest rates are determined on the basis of market conditions, such high rates are not expected to be offered the next time as overall interest rates in the economy are expected to head down. So, individual subscribers in the scheme can consider increasing their contribution to the EPF account for garnering higher tax exempt returns. So, apart from tax benefits you can realize a larger amount as retirement corpus.

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Read more about: epf, pf, tax saving, interest rates, nsc, ppf
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