Tax benefits with PF account.

Provident Fund (PF) , the best option to save for post- retirement purposes. But there are options to withdraw, either partial amount or whole amount, while you are in service.

Let us know the different reasons why we can opt for PF amount.

a) Medical emergency.

b) For marriage purposes, either for self, siblings or children’s.

c) For education

d) For buying a plot or construction or buying a house.

For each purpose, the amount to be withdrawn is calculated separately.

Let us also learn what are the benefits if we keep the provident fund untouched or withdraw for any purpose.

Tax Benefits on PF amount in the words of Revenue Secretary.

Seeking to dispel fears of the salaried class, the government declared that PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.

In an interview to PTI, Revenue Secretary Hasmukh Adhia said “The Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.

The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed.”

“This 60 per cent will also be tax exempt if it is invested in a pension annuity schemes”, he said. “This is not a revenue mobilisation exercise ” he added.

pf tax benefits_loanyantra

Adhia said that no part of PPF will be taxed and the present scheme of investment up to Rs 1.5 lakh in a year will continue to be tax exempt. PPF on withdrawal will continue to be out of the tax ambit.

“We are saying, 40 per cent of it (EPF amount) will be available at the time of retirement. For the remaining 60 per cent, we want to encourage you to invest in annuity product. So if your corpus is Rs 1 crore, Rs 40 lakh you withdraw and use it for house construction or other work… Rs 60 lakh you invest in annuity so that you keep getting pension,” he said.

The gist of the above statements.

  • The withdrawals are not taxable whereas 60% of the interest accrued is taxable.
  • 60% taxable amount can again be tax exempted by investing in annuity schemes.
  • You can also voluntarily invest in your PF account. The limit to invest is 1.5 lakhs per year which is also tax exempted.

NOTE: The amount in the fund yields 8.7% interest. This is a risk-free investment. Withdraw the amount only if you know you can yield more interest in other investments and also if you can save as much as withdrawn.

At present, social security schemes run by retirement fund body EPFO fall under Exempt-Exempt-Exempt scheme in which deposits, accrual of interest and withdrawals are tax free.

Encourage yourselves to save for post-retirement life. Use the tax benefits and plan for a tension free retirement life.

Know more about PF for home loan by following the link below.


4 thoughts on “Tax benefits with PF account.”

  1. Good article…can u explain what is the process for withdrawing from pf for home buying and how is the amount eligble be determined?

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