Withdrawing your EPF? We tell you how your savings will take a hit
Finance Minister Arun Jaitley’s decision to tax the interest earned on 60% of your Employee Provident Fund (EPF), when withdrawing before maturity, will burn a hole in both your heart and pocket. While his intention was to earn more revenues for the government’s big ticket social schemes, it hasn’t really gone down well with the salaried class, who have traditionally seen the
Currently, a company can contribute up to 12% of the basic component of someone’s salary as EPF.
Still scratching your heads to figure how this new announcement will hit your safe savings? Allow us to explain!
Let’s say you earn Rs 2.5 lakh as salary annually, it would mean your in-hand-monthly income would be roughly around Rs 20,000, which would include components such as Basic, HRA, Transport and Special Allowance. Assuming that your basic salary is Rs 11,000, basis how you’ve negotiated your salary structure with your employee, the EPF contribution then would amount to Rs 1,320. As per the new policy, interest earned on 60% of this amount, which is roughly around 8.8% interest on their EPF contribution. It means that the the government will levy tax on the interest levied on Rs792 . So, in the case you have quit the company and want to withdraw your EPF, the government will now tax the interest received on the contribution,
Similarly, for an employee with an annual package Rs 5 lakh, the monthly salary is a little over Rs 41,000. If we assume that the basic salary is Rs 15,000, the monthly EPF contribution would be Rs 1800. The monthly interest received on 60% of the Rs1,080 amounts to Rs 95 at 8.8% rate of interest.
For an individual earning Rs 10 lakh, the monthly salary is Rs 83,000. The basic component is assumed to be Rs 30,000 and the EPF contribution amounts to Rs3,600. The interest received on 60% of this saving i.e. Rs 2,160, is taxable.
Well, it seems the government will be able to churn out huge revenues in FY17 by taxing the EPF. Won’t be surprised if the NaMo government once again meets its revenue target in 2016 as well. But we feel your pain!