Tagged: EPF

NTH :: Should EPFO subscribers hike their ETF investments?

The whole theme of EPFO providing these choices to increase and reduce equity exposure is a case of duplication of effort and design. Financial experts are advising investors to leverage existing options.
Hiral Thanawala | May 02, 2018 11:28 AM IST | Source: Moneycontrol.com

NTH

There is good news for over five crore subscribers of retirement fund body EPFO. Soon they may have an option to increase or decrease investments of their provident fund into stocks through exchange-traded funds (ETFs) in the current fiscal. In its last meeting, the Central Board of Trustees decided to explore the possibility of granting an option to increase or reduce equity allocation to subscribers contributing through ETF above the 15% cap.

The Employee Provident Fund Organisation (EPFO) had started investing in ETFs from investible deposits in August 2015. In FY16, it invested five percent of its investible deposits, which was subsequently increased to 10 percent in FY17 and 15 percent in FY18. However, subscribers were not at all pleased with this increase in exposure to equities. There were some who didn’t want to risk their retirement corpus built through the EPF route. While other subscribers were keen to increase exposure to equities for better returns in the long-term.

So, what advice do financial experts have for EPFO subscribers looking to increase their exposure to equities through the ETFs route when the option is opened up?

Who should increase or reduce investments in ETFs?
Several investors are not reasonably patient with their active investments and panic when they see volatility in the market. Chenthil Iyer, a Sebi registered investment adviser and author of ‘Everyone Has an Eye on Your Wallet! Do You?’ said these investors generally invest only in fixed deposits and post office schemes. “For such investors, increasing the equity exposure through EPF route may be a good option as it is a passive mode of investing and ensures a long-term commitment.”

For investors who manage their active investments and have a well-diversified portfolio, Iyer recommends a minimum equity exposure.

Arvind Laddha, Deputy CEO, JLT, Independent Insurance, has a word of caution. “In the past, there have been negative returns for consecutive two-to-three years or even more from equity markets and this could compromise the savings of EPFO subscribers which they are not used to.”

As not all investors understand the risk of equities and their volatile nature of returns, Kalpesh Mehta, Partner at Deloitte India, feels an investor should also consider one’s age, risk appetite, financial obligations and total net worth before increasing exposure to equities through ETFs.

Benefits of increasing investments in ETFs
Here are the benefits of increasing investments in ETFs through EPF contribution as explained by Amit Gopal, Senior Vice President, India Life Capital: 1) Regular monthly SIP because of mandatory contributions; 2) Inexpensive as employees (contributors) don’t have to pay fund management fees in the current model of EPF; and 3) Tax advantages on contributions. To this, Colonel Sanjeev Govila, CEO, Hum Fauji Initiatives lists institutional framework taking care of selection and research of equities while investing.

Drawbacks of increasing investments in ETFs
Gopal highlights drawbacks such as insufficient administrative track record, illiquidity associated with a retirement fund product, absence of choice in fund manager and products.

To this, Iyer cautions, “Putting the responsibility of equity exposure of this fund on the individual may expose it to the vagaries of the individual’s risk perception, leading to possible over-exposure.”

Make EPF more investor friendly
EPF needs to be investor friendly with additional facilities of enhancing and reducing equity allocation which is likely to be made available in the coming two-to-three months. Iyer feels periodic electronic statements should be mailed to the subscribers which clearly mentions the amount and number of units available in ETF.

“Further an automatic mode of distributing the contribution into equity and debt should be made available based on the age of the individual just like NPS.” This, he feels, will ensure minimum manual intervention in decision-making with regard to equity exposure.

According to Goyal, while EPFO have described some methods of passing on returns, nothing concrete has been implemented. “It is unclear how they will ford the system and governance challenges that could arise.”

It would therefore be good if these issues are resolved before increased allocation and employee choices are implemented. An investor needs to keep a track of this developments for their own benefit.

Leverage on existing options instead of duplicating efforts
The whole theme of EPFO providing these choices to increase and reduce equity exposure is a case of duplication of effort and design. Financial experts are advising investors to leverage existing options.

“The NPS already provides the same structure and benefit. Integrating it with the EPFO and permitting portability is a more efficient way of enhancing employee choice. NPS already has the architecture and track record of administering an employee choice model,” Gopal added.

Source: https://bit.ly/2IdyOMu

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ATM :: 10 Ways to Invest Wisely and Save Income Tax

Are you still trying to figure out ways to save tax? Tax saving is not as difficult as we think. We just have to be aware of things that we need to do to reap the tax benefits.
News18 Specials | Updated:July 3, 2017, 2:41 PM IST | news18.com

ATM

Are you still trying to figure out ways to save tax? Tax saving is not as difficult as we think. We just have to be aware of things that we need to do to reap the tax benefits. Also, it is crucial to declare investments at the beginning of the year to your employer so that accordingly, he can adjust the TDS (Tax Deducted at Source) and you get the tax benefits in advance rather than waiting for refund from the I-T Department.

Given below are 10 Ways to invest wisely and save income tax.

Home Loan: Paying EMIs for home loan can be a burden for you but the good news is that it can help you claim the tax benefits. You can claim the interest paid upto Rs.2,00,000/- on your home loan EMIs as an exemption from your taxable income. If you make any pre-payments to your home loan, then pre-paid principal upto Rs. 1,50,000/- can be claimed as a deduction.

HUF Account: If you are earning additional income apart from your salary, then it is taxable. However, if you open a Hindu Undivided Family account and show it under your HUF then you can save tax.

Tuition Fee Payment: We usually spend hefty amount of our income to pay for the education of our children. We can get tax rebate for the amount that we pay as tuition fee for upto two children.

Leave Travel Allowance: LTA given by your employer for the expenses that you and your family have incurred on travel within India can be claimed as deduction. It’s better to plan your vacation in advance and get the LTA benefits.

Health Insurance + Medical Expenses: You can claim tax benefit up to Rs.15,000/- for self, spouse and children and Rs.20,000/- for parents above 65 years of age. Additionally, you can claim upto Rs.15,000/- annually for medical expenses by showing genuine consultation and medicines bills.

Pension Funds: Fortunately, I-T laws provide you the opportunity to reduce your taxes if you are investing in pension funds.

Education Loan Repayment: Just like tax benefits available on tuition fee payment, you can also claim deduction for EMIs that you pay towards your Education loan. So investing in your education has more benefits than just upscaling your skillset.

Employee Provident Fund: Under section 80C, not only the interest, income and maturity amount of your EPF account is exempted from tax, but also the contribution that you make to the PF account can be claimed as deduction.

National Pension Scheme: NPS is one of the most secure investment options given by the postal department. You can claim tax rebate on the amount that you contribute to this scheme.

Donations for Charity: While donating for a charitable cause you not only get the inner peace but it also makes you eligible for tax exemption.

Source: https://goo.gl/CmqgtS

NTH :: Should you withdraw 90% from EPF account or take a home loan for buying your dream home?

The government has decided to allow Employees’ Provident Fund Organization (EPFO) subscribers to withdraw up to 90% from their EPF account for the purpose of purchase and construction of their homes. However, would it be a wise decision to withdraw money from your EPF account to buy a home or availing a home loan would be a better option?
By: Sanjeev Sinha | Updated: March 17, 2017 5:02 PM | The Financial Express

NTH

The government has decided to allow Employees’ Provident Fund Organization (EPFO) subscribers to withdraw up to 90% from their EPF account for the purpose of purchase and construction of their homes. However, would it be a wise decision to withdraw money from your EPF account to buy a home or availing a home loan would be a better option?

Experts say that buying your first home is rarely an easy task. Now the amendments to the EPFO suggested by the government would certainly allow more individuals to raise the funds needed for their home purchase. In that sense, it is a welcome move since it allows EPFO members access to their own funds in order to achieve a vital financial objective.

However, allowing the EPFO subscribers to withdraw up to 90% from their EPF account for the purpose of purchase and construction of their homes has its share of merits and demerits. “The use of EPF to fulfill these purposes would depend upon the quantum of provident fund deposits which would have accumulated over the years. Buying or constructing a home would require a lot of cash to be spent on as the costs to undertake the said activities can be very high. So, you must check how much EPF balance you have,” says Rishi Mehra, CEO of Wishfin.com.

On the basis of the balance, you can take a calculative decision. If the balance is on the higher side, say in lakhs, and you have more than a decade of the professional journey left before the retirement, you can use the reserve. But make sure not to consume the entire 90% as you can have a challenging post-retirement life to live.

For instance, if 70% of the retirement corpus is sufficient to buy or construct a house, you should consume only 20%-30% and opt for an attractive home loan deal to pay the remaining amount as required to buy or construct a house. This will allow the unused portion of the EPF balance to accumulate and enable you to lead a comfortable life post-retirement besides having a home.

However, “if 20%-30% of the EPF reserves is enough to serve your purpose of home buy or construction, then you can avoid paying the interest that comes with a home loan offered by the banks and housing finance companies (HFCs). If that is not the case, you can either avail a home loan or use both EPF and home loan. The latter option can reduce the interest liability to a considerable degree,” says Mehra.

For example, you have a PF balance of Rs 12 lakh and require a sum of Rs 20 lakh to pay to the property dealer to buy a house. You can then take out Rs 2.5 lakh-Rs 4 lakh from the PF deposits and avail a home loan of Rs 16 lakh-Rs 17.5 lakh. Now, look at the savings you could have using both deposits and loan over the option of loan alone through the calculation in the below table.

In the table, you can see the saving of Rs 2,250-3,599, Rs 2,89,836-4,63,737 and Rs 5,39,837-8,63,737, in EMI, interest payout and the overall payment, respectively, by preferring the combined option of PF and home loan over home loan only.

Pros of EPF Option
# It allows you to buy or construct a home without or paying a lower amount of interest.
# Beneficial for those who need few bucks to fulfill the purpose of buying or constructing a home.

Cons of EPF Option
# Retirement corpus gets used up for an expensive deal of home buy & construction.
# You are left with a very little or virtually nothing to enjoy post-retirement.
# Availing the PF option without having other savings could prove doomsday for your financial health.

Who Should Avail EPF & Who Should Avoid?
As far as who should use the provident fund deposit and who should avoid would depend upon the overall EPF contribution, the financial state and the goals of an individual. “Retirees, who have a huge bulk of EPF balance even after using a portion of the same for a home deal, would like this option. But for some who are in the middle of their professional life can’t go solely with the EPF option. These individuals would have to avail a home loan alongside EPF to find the key to their dream home. With this, they can enjoy an affordable home loan journey while securing their future at the same time. Newcomers would have to wait for a fair length of time before they can think of using the EPF for the home purpose,” says Mehra.

You should also note that the EPF’s primary purpose is to ensure income in retirement for its members. If you withdraw from this fund, you’ll miss out on the benefits of the great returns EPFO provides along with compounded growth over the long term. You’ll then have to find another way to regenerate your retirement fund, which is a challenging proposition. Also, “if you have a large EPF corpus, you can let it earn a handsome 8.65% per annum at the moment (with the possibility of earning higher in the years to come), and take a home loan which you can avail at interest rates around 8.6%. Taking a home loan also allows you additional tax savings through principal and interest repayments up to Rs. 350,000 per annum,” says Adhil Shetty, CEO, BankBazaar.com.

However, if we look at the development thoroughly, the government is also looking to allow EPFO subscribers to use their PF deposits as a mean to repay the home loan EMIs. Well, “to ensure you save for the future and at the same time reduce your interest liability, you should partly use the PF deposits towards the payment of the home loan EMI. The option of paying the EMIs partly through PF deposit could appeal to the most,” informs Mehra.

Source: https://goo.gl/hH2F5v

ATM :: As govt rolls back EPF withdrawal norms, 5 reasons to stay invested

PF withdrawal norms dropped: There could be good reasons to keep your money with the EPFO unless you need it for a specific purpose and you have no alternative sources to meet those expenses.
By: Sarbajeet K Sen | Updated: April 20, 2016 5:25 PM | Indian Express

ATM

Employee Provident Fund members may have won the battle against the government’s move to impose restrictions on EPF withdrawal, but should they rush to take out the money if eligible to do so?

There could be good reasons to keep your money with the fund unless you need it for a specific purpose and you have no alternative sources to meet those expenses.

Here are a few reasons why you should consider staying invested in with the Employee’s Provident Fund Organisation (EPFO).

Provides old-age income security: The main purpose of contributions to EPF is to create a corpus for the golden years of the members. The corpus created through compulsory savings should be looked at as a fund that would provide financial security at old age. It should not be withdrawn unless for specified emergency purposes. Besides, there is provision for pension and insurance under EPFO.

High rate of interest: EPFO has set the interest rate for 2015-16 at 8.8 per cent, which makes it one of the most lucrative fixed-income savings instruments. This is even better than Public Provident Fund (PPF) which now gives an annual interest of 8.1 per cent. Hence, financial advisors often suggest voluntary increase in EPF contributions from the employee side beyond the mandatory 12 per cent of basic.

Compounding for more years builds large corpus: With the money being compounded at a healthy interest rate the fund can help generate a corpus at retirement can be substantial. A quick calculation shows that an average monthly contribution of Rs 5000 for 30 years at 8.8 per ent compounded annually will create a corpus of Rs 82.35 lakhs after 30 years. However, if the same it withdrawn after 25 years, you will get around Rs 54 lakhs and over 20 years the corpus will be substantially lower at Rs 32 lakhs.

Provides tax-free returns: EPF enjoys Exempt, Exempt, Exempt (EEE) status and hence it is not taxed throughout its life including contribution, accumulation and withdrawal. If tax-saving is factored in, the 8.8 per cent interest rate works out effectively to nearly 12.5 per cent interest if you are in the 30 per cent tax bracket. However, if you withdraw the corpus before completing five years as member and the amount is over Rs 30,000, you will have to pay tax as per your income slab.

Interest paid even in dormant accounts: The government has recently taken a decision to resume paying interest on ‘dormant’ EPF accounts. Earlier, if your money with EPFO had no contributions for over 36 months it was being categorized as ‘dormant’ and no interest was paid on it. That was a good reason to withdraw the money and invest it to other productive avenues. Not any longer. You can now retain the accumulation and earn healthy interest till retirement.

Source : http://goo.gl/mKmSU7

NTH :: Planning to withdraw your EPF? All you need to know about new norms

The new Employees’ Provident Fund withdrawal norms, initially notified on February 10, would make it tough to access the entire amount if you do not meet the criteria set out.
By: FE Online | April 6, 2016 1:54 PM | Financial Express

NTH

Are you planning to withdraw your Employees’ Provident Fund (EPF) corpus? If you have been without a job for two months and want the entire corpus to come to your kitty in one go, you should apply for withdrawal before April 30. This is because the Employees’ Provident Fund Organisation (EPFO) has recently deferred the applicability of the new withdrawal norms from May 1, 2016. The new norms, initially notified on February 10, would make it tough for you to access the entire amount if you do not meet the criteria set out.

As per EPFO norms, 12 per cent of an employee’s salary goes as contribution to EPF along with a matching contribution from the employer.

The existing withdrawal rules say that a subscriber who has been out of job for two months can apply for withdrawal of the entire accumulated corpus. However, once the new norms come into play this would change.

So, what do the new norms say? And how are they different from the present norms?

Change in retirement age: For starters, the new norms would set the retirement age for provident fund purposes to 58 years against the earlier 55. The revised norms are pegged around this age criteria.

How much can you withdraw? Unlike the present status, the new norms would make it difficult to withdraw the entire corpus (including employer’s contribution, employee’s contribution and the interest accrued) lying against your name. Under the new provisions, if you are below 58 years, and employed, you will be able to withdraw only your own contributions lying in the fund and the accrued interest on that. You will be allowed to withdraw the employers’ contribution only when you attain 57 (one year before the retirement age of 58). Since the earlier retirement age was 55, you could withdraw the entire amount once you reached that age, which will be pushed back year from May 1.

The 90 per cent provision: With the present 55 years retirement provision, the EPF norms says that a subscriber is permitted to withdraw up to 90 per cent of the entire balance (employer’s contribution, employee’s contribution and accrued interest) once you attain 54 years or within a year of actual retirement. Once the new 58 years retirement age provision kicks in, the withdrawal option will be available once you attain 57 years. And the entire corpus, instead of 90 per cent, can be pulled out at one go.

Membership to stay: The new norms would force you to remain an EPFO member till retirement age of 58, or between 57 and 58 if you wish to pull out your money a year before. This is because the employers’ contribution cannot be withdrawn till that time.

Earlier, once an employee withdrew the entire amount at any time citing two months of being without an employment, your EPFO membership would terminate.

Exemption for women: The new norms make it easier for women It stipulates that woman who quit their job for getting married, pregnancy or childbirth will not have to wait for two months to withdraw. They can do so immediately.

Withdrawal before 5 years to be taxed: However, as earlier, if you withdraw your PF money within 5 years of joining as a subscriber, your withdrawal would be subject to Tax Deduction at Source (TDS) if the amount is above Rs 30,000.

Source : http://goo.gl/qzuQM2

NTH :: Government may make it mandatory for companies to route share towards retirement savings into EPS

By Yogima Sharma, ET Bureau | Mar 10, 2016, 07.00 AM IST | Economic Times

NTH

NEW DELHI: Finance Minister Arun Jaitley may have been forced to back down on taxing Employees’ Provident Fund (EPF) withdrawals a week after introducing the measure in the Budget, but the government has not given up on the goal of creating a pensioned society.

It’s now considering a proposal to make it mandatory for employers to route most of their share toward the retirement savings of employees into the Employee Pension Scheme (EPS) rather than EPF for employees above the salary threshold of Rs 15,000 per month, an official said. Aprivate sector employer matches contributions made by an employee to EPF — 12% of basic salary by each. While all of the employee’s contribution goes to EPF, 8.33% of the employer’s payment goes to EPS subject to a maximum of Rs 1,250 a month.

That’s 8.33% of Rs 15,000, the statutory limit for contributions. These and other EPS conditions may change if the proposal is implemented wherein those earning more than Rs 15,000 a month will see a higher share of the employer’s contribution going to EPS.

Changing the rule on the employer’s contribution would mean that a substantial portion of this would go toward a pension for the employee, rather than getting withdrawn at one shot from the EPF at retirement. This will maintain parity between EPF and the General Provident Fund as the former will continue to enjoy exempt-exempt-exempt (EEE) status at the stages of investment, accumulation and payout. “This proposal was discussed at a highlevel meeting in the PMO last week,” said the senior government official cited above. He was one of those who attended the meeting.

There was near agreement that this would be a better way to move toward a pensioned society, according to the official, who did not wish to beidentified. “Government does not want to go wrong this time and we would ensure that there are extensive consultation with all stakeholders on the proposal,” the official added.

On Tuesday, Jaitley scrapped his Budget proposal to tax EPF withdrawals unless the subscriber bought an annuity, saying that the government wanted to undertake a comprehensive review. This followed a backlash against the move from those who would be affected despite the government explaining that it wanted to discourage people from taking out all their money in one shot and ensure that they had a steady income over the remainder of their lives.

The EPS proposal was welcomed by tax experts.

“Making employers contribute to EPS is a more sensible decision that will help the government (succeed in) its objective of creating a pensioned society,” said PwC personal tax leader Kuldeep Kumar. Kumar is of the view that the government should restore an EPS feature that was discontinued two years ago and change the provisions of the scheme so that defined benefits are given only to those in the low-income segment.

The government used to contribute 1.16% to the pension kitty of every EPF member as part of EPS run by the EPFO to offer a pension for life after the age of 58. In September 2014, EPFO withdrew this subsidy for those earning above the threshold of Rs 15,000 per month.

Source : http://goo.gl/Hbxzaj

NTH :: Budget 2016: PPF stays on exemption list, only EPF interest to attract tax

Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
By: PTI | New Delhi | Updated: Mar 1, 2016, 14:11 | Indian Express

NTH

Seeking to dispel fears of the salaried class, the government today said PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.

In an interview to PTI, Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.

The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016. “The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed.”

Source : http://goo.gl/NPl6WJ