EPF Contribution– Arranging a regular income after retirement is crucial for any employed person. This is the purpose of the Employees’ Provident Fund (EPF). The monthly contribution from employees’ salaries to the EPF not only ensures savings, but the EPS also provides for pension after retirement. Previously, there was a 12% limit on deductions from employees’ salaries for EPF and EPS.

However, now the government has given employees the option to contribute more than their salary. The question is: should you increase your EPF contribution? If you do, what benefits will you receive, and what is the process for taking advantage of this rule? Typically, an employee contributes 12% of their basic salary and DA (dearness allowance) to the EPF . The employer also contributes the same amount. However, a portion of the employer’s contribution goes to the Employees’ Pension Scheme ( EPS ).

Until now, pension calculations were based on a maximum salary of Rs 15,000. However, the government has now allowed employees to contribute more, based on their entire salary. This will increase contributions to both EPF and EPS.

The benefits of contributing more to EPF will accrue after retirement. If you contribute your entire salary instead of the Rs 15,000 limit, both your EPF amount and pension amount will be higher upon retirement. EPF is a scheme that earns interest every year and provides the benefit of compounding. As you contribute more, the amount grows year after year into a substantial corpus. This deposit becomes your greatest financial security at the time of retirement. Furthermore, EPF also offers the benefit of the Employees’ Deposit Linked Insurance (EDLI) scheme, which provides life insurance coverage to employees.

Double benefit in tax

Deposits into EPF are also tax-free. Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to Rs 1.5 lakh per year on EPF contributions. Significantly, not only the EPF investment itself, but also the interest and maturity amount are tax-free. Therefore, if you make a higher contribution, the tax-saving benefit increases.

EPF and EPS are not just retirement schemes but also a vital part of social security. This means that in the event of an employee’s death, their family also receives survivor benefits. This includes widow pension and children’s pension. This means that an employee’s higher contribution can also provide a security shield for their family.

Higher balance means more flexibility

EPF isn’t just for retirement; you can also make partial withdrawals for specific needs. These include medical treatment, children’s education, or buying a home. A higher balance will allow you to withdraw funds more easily during difficult times, providing peace of mind.

How can you increase your EPF contribution?

First of all, you have to tell the HR or payroll team of your company that you want to contribute more to EPF as per your entire salary.

 

For this, your HR will make arrangements to deduct extra amount from your salary and deposit it in your EPF account.

 

If you want to save more, you can opt for the Voluntary Provident Fund (VPF). This is an extension of the EPF, allowing you to contribute more as per your wish. VPF also offers the same interest rate and tax benefits