TAX BENEFITS ARISING OUT OF EPF
The Employees’ Provident Fund (EPF) offers several tax benefits in India, both for contributions and withdrawals. EPF is a retirement savings scheme where both the employer and employee contribute a portion of the employee’s basic salary and dearness allowance. The contributions are made to a provident fund account, which is then invested in various government securities.
Here’s an overview of the key tax advantages associated with EPF:
Tax Benefits for the Employee:
- Contributions made by the employee to the EPF account are eligible for deduction under Section 80C of the Income Tax Act.
- This deduction can be claimed up to a maximum of ₹1.5 lakh in a financial year.
2. Tax-Free Withdrawals:
- On retirement, the entire accumulated amount in the EPF account can be withdrawn tax-free.
- In case of premature withdrawal due to specified reasons (e.g., buying a house, medical treatment), a portion of the withdrawal may be taxable. However, the tax liability is generally lower than the tax that would have been payable on the entire amount if it were withdrawn as income.
3. If a lump sum amount is received by the employee from the EPF, it would be exempt from being taxed, provided that the employee has completed five or more years of continuous service, under section 10(12) of the Income Tax Act, 1961.
2. Tax Benefits for the Employer:
- From the employer’s side, a contribution up to 12% of the employee’s salary is exempt from tax.
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