Basics of the Employee Provident Fund (EPF and VPF) Scheme: It is a social security program for salaried people (not government workers) that requires both the employer and the employee to contribute 12% of salary each month (basic wages, DA, and retaining allowance). Additionally, an employee can contribute more than 12% to a Voluntary Provident Fund (VPF).
INVESTMENT: If your monthly salary is less than $15,000, mandatory. The same option is available to other workers.
LIQUIDITY: The money can be withdrawn upon retirement or resignation (after two months of unemployment). Under certain conditions, such as marriage, medical necessity, and so on, partial withdrawal is permitted.
RETURNS: Without risk. EPFO has announced an interest rate of 8.1% for 2021–22.
TAX SAVINGS: allowed as a deduction within the overall limit of 1.5 lakh set forth in Section 80C. An employer's contribution of up to 12% of an employee's salary is exempt from taxation. However, if an employer contributes more than 7.5 lakh rupees to the EPF in a single fiscal year, the resulting income is taxable. Taxable interest on employee contributions exceeding 2.5 lakh annually is also available. As a result, investing additional funds in VPF has become less appealing.
WITHDRAWAL TAX: Only taxable if the money is taken out prior to five years of continuous service.
Basics of the National Pension System (NPS): Plan to save for retirement on your own, open to both salaried and unsalaried individuals. obligatory for government workers.
INVESTMENT: For Tier-I accounts, the minimum contribution is $1,000, while for Tier-II accounts, it is $250. There is no contribution cap. Tier I is a long-term investment account where the money can't be taken out until you retire. Benefits from taxes vary as well. Subscribers to NPS have access to a variety of investment choices, including equity funds, debt funds, gilt funds, and alternative investment funds. They are free to switch pension fund managers and options.
LIQUIDITY: confined until sixty years of age or until retirement. However, after three years, partial withdrawals for specific reasons are possible, with a maximum of 25% of contributions. Three times withdrawals are permitted.
RETURNS: Returns are subject to market risks and are not guaranteed. For instance, based on data as of January 6, 2023, an investment in the Tier I NPS Account of LIC Pension Fund Ltd. in Scheme E has yielded 10.45 percent over five years, whereas an investment in the same fund in another scheme (Scheme C) has yielded 7.67 percent over five years.
TAX SAVINGS: Under Section 80C, subscribers to Tier 1 accounts can get tax benefits up to a maximum of 1.5 million dollars (government employees can get this benefit even if they invested in a Tier II account).
Section 80CCD (1B) permits an additional deduction for investments up to 50,000 in a NPS (Tier I account). Section 80 CCD allows employers to deduct up to 10% of salary (Basic+DA) as employer contributions (2). This limit is 14% for employees of the government. However, income derived from employer contributions exceeding 7.5 lakh in a given fiscal year is subject to taxation.
WITHDRAWAL TAX: Tax exemption applies to lump sum withdrawals of 60% of the accumulated balance made from superannuation. The monthly annuity is taxed.
Basics of the Public Provident Fund (PPF): It is a voluntary tax savings plan that is available to both salaried and non-salaried individuals. After a predetermined lock-in period, a lump sum payout is available.
INVESTMENT: A maximum of 1.5 lakh is allowed, with a minimum of 500 per year. Investments can be made all at once or in stages.
LIQUIDITY: After 15 years, maturity, or full withdrawal of the balance, is required. After six years, partial withdrawal based on a formula is allowed. A single additional withdrawal is permitted per fiscal year.
RETURNS: These carry no danger. The current interest rate for the fourth quarter of the fiscal year 2022–23, which runs from January to March, is 7.1%. TAX BENEFITS: Under Section 80C, contributions to the PPF may be deducted up to a total of 1.5 lakh. TAX ON WITHDRAWAL: Tax exemption applies to partial or total withdrawals from PPF.