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I am 40 years old. I have been making voluntary contributions to the Employees Provident Fund (EPF) since the beginning of my career. The corpus has grown to ₹40 lakh, including contributions and interest till date. Apart from this I also make SIP investments of ₹15,000 pm in largecap diversified equity funds. After the finance minister's budget speech today, taxing withdrawals above 40 per of of EPF corpus at retirement, should I continue with my voluntary contributions? Will I be better off diverting my voluntary contributions elsewhere? If so, what are the good options?
- Srinidhi Rajagopal
According to the budget proposal, an EPF subscriber can withdraw only up to 40 per cent of the accumulated corpus, created out of contributions made after April 1, tax-free. However, the government has clarified that a subscriber can avoid paying tax if the 60 per cent of the corpus is used to buy an annuity. It further clarified today that only the interest accrued will be taxed at the time of withdrawal. The principal would not be taxed at the time of withdrawal. You should wait for the final outcome before taking a decision.
However, irrespective of the tax angle, you should consider stopping your voluntary contributions to EPF. You are sacrificing a lot of returns here for safety and it would hurt you in the long term. You should consider investing the money in equity mutual funds. It will help you earn better returns and build a larger corpus for your long-term financial goals.
This article was originally published on March 01, 2016.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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