If you are investing in EPF to meet your retirement goal, you must explore ways to grow the PF money so that you can create a big corpus.
To achieve retirement goals, you need financial discipline and positive investment approach. Out of several investment instruments available in the market, Employee Provided Fund (EPF) plays a key role in helping you achieve your retirement goal. Once you retire, you would remain dependent on your retirement fund to meet most of your expenses. Therefore, you must build a sufficient corpus for your retirement without making too many financial mistakes.
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If you are investing in EPF to meet your retirement goal, you must explore ways to grow the PF money so that you can create a big corpus. Let’s discuss things that can help you grow your PF money.
Maximum Investment in PF
If you are a non-government employee, under non-taxable contribution you can invest a maximum amount of up to Rs 2.5 lakh in a financial year into a PF account (including EPF and Voluntary Provident Fund (VPF)). For government employees, the upper investment limit is Rs 5 lakh. If you invest more than the upper ceiling, the interest on the extra contribution will be taxable.
To ascertain the maximum amount you can invest in PF, first, ascertain the mandatory investment (12% of basic salary+DA) that you need to make in the EPF. Thereafter estimate the amount you can invest in VPF by subtracting the total mandatory annual contribution to EPF from Rs 2.5 lakh.
For example, suppose your monthly basic salary+DA is Rs 40000, so the mandatory contribution to EPF would be 12% x Rs 40000 x 12 months, i.e., Rs 57600/annum. Now, the maximum amount you can invest in the VPF would be Rs 2.5 Lakh minus Rs 57600 = Rs 1.42 Lakh. So, you can invest Rs 1.42 Lakh through VPF without paying taxes on its interest income.
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This way you can exhaust the maximum permissible limit for investing in the PF while also enjoying the tax benefit on the interest income. However, you must keep in mind that the contribution to VPF doesn’t requires a contribution from the employer as it happens in the case of EPF. You can contribute the desired amount that should be over and above 12% of the basic income to VPF. The same rate of interest is offered on EPF and VPF. Also, investment in VPF within the applicable upper ceiling offers tax benefit u/s 80C and the maturity corpus is also tax-free.
Adhil Shetty, CEO, Bankbazaar.com, says, “EPF has a voluntary contribution facility called Voluntary Provident Fund (VPF). You can now pay Rs 2.5 lakh per annum and the interest you earn on this amount will not be taxed. For government employees, this limit is 5 lakh. Interest earned on VPF contributions above these limits will be taxed.”
How Can PF Help Grow Your Retirement Corpus?
PF offers an attractive interest rate consistently. It offered an interest of 8.15% in FY 2022-23. If you also include the PF’s tax benefits, then the return is best in the low-risk asset category. When you invest for a long-term goal like your retirement goal, you need three things, i.e., the safety of the fund, consistent return, and tax efficiency.
PF offers all three. If you fall in the highest tax bracket, it can save you lots of taxes till you retire. By investing up to Rs 2.5 Lakh in PF, you can get a tax-free income that can help you build your retirement corpus.
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Investing in PF alone may not accomplish your retirement goals, but it can offer a more stable and secure option to provide the right balance to your portfolio. Along with other investment options like equities, debt funds, etc., PF should be used for diversifying the investment portfolio meant for your retirement.
