The Employees' Provident Fund Organization (EPFO) provides an opportunity for salaried employees working in the private sector to build a retirement fund through regular investments. Moreover, the Employees' Provident Fund (EPF) investment is one of the best options for employees to build a retirement corpus.
It is important to mention that EPF investments up to Rs. 1.5 lakh per year gets tax exemption under Section 80C of Income Tax Act. Also, the maturity amount is also exempted from tax once the individual contributes for more than 5 years.
If a person starts working at the age of 21 years with a basic monthly salary & Dearness Allowance of Rs. 25,000 will retire with over Rs. 1 crore from his regular contributions to the EPF investment. According to the existing EPFO norms, employee and employer contribute 12% of the basic salary and DA each towards EPF.
The money is deducted from the employee's salary every month which helps in building a corpus fund till retirement.
From the employer's contribution, 8.33% goes towards Employee's Pension Scheme while 3.67% goes towards EPF investment.
Partial withdrawal from the EPF is allowed under certain situations but it is better not to withdraw money from your EPF account till retirement.
What is the interest rate on employees' provident fund?
The government has set the interest rate on the Employees' Provident Fund at 8.1% for FY2022-23.
Let’s understand this through an example - A person who joins a company at the age of 21 years with basic pay & DA worth Rs. 25000 does not withdraw money from his EPF account then he will retire with more than 1 crore with this current interest rate.
Also, if your retirement age is 60 years and you contributed to EPF investment for 39 years. Then with the current interest rate of 8.1 %, your retirement fund will be over Rs. 1.35 crore.
If your salary increases by 5% per year then your retirement fund can grow to Rs. 2.54 crore.
With an annual increment of 10% in salary, a person can retire with an EPF corpus of more than Rs. 6 crore.
