A proposal in budget 2021 to tax interest on employee contributions to provident fund above ₹2.5 lakh per annum has closed a lucrative retirement savings vehicle for well-paid employees. The move will alter the attractiveness of EPF compared to NPS. Mint explains.
Employees’ Provident Fund (EPF) is a retirement fund for organized sector employees. Employers must contribute 12% of the basic salary plus dearness allowance and deduct an additional 12% on behalf of the employee. Out of employer’s contribution, 8.33% goes to the Employees’ Pension Scheme (EPS) and earns no interest. However, the balance 3.67% and the whole of employee’s contribution portion bears an interest every year, as declared by the Employees’ Provident Fund Organization (EPFO). This has been in the 8-9% range over the past decade.
Source: livemint
