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Video: Our Take on the EPF Tax in 10 minutes

While the government discusses whether (or not) to keep the EPF tax that they recently introduced, let’s take a dive into what this tax really is, in a short video.

(Also read: Clearing the confusion on how the EPF is Taxed at Exit)

Our View

While the Economic Times suggests that some (or all) of this tax is going to be rolled back on Tuesday, it remains an intriguing topic: Will the government keep this tax free forever? Or will they slowly, over time, tax what you save for retirement? After all if it isn’t taxed when you save it (due to input tax benefits) it is likely to get taxed when you take it out. You get incentivized to save for retirement only when such a tax is applicable when you do reach retirement – that’s how most developed nations do it.

Having said that, the EPF tax hurts more because the inputs – for most people – aren’t exactly tax free.

Lastly, remember that if EPF is voluntary, then you should consider managing your own retirement. Over the longer term you should be able to beat inflation (and more) with even a small allocation to equities (20%) and debt; and then the corpus is yours to use, to do whatever you want. But because we believe EPF is NOT voluntary, and that we like fixed returns every year, we’ll struggle against the EPF tax and keep fighting for a return that just about matches inflation.

  • Phoenix says:

    The reality of EPF roadmap -who gains and who looses and how?
    Governments force their citizens to buy their bonds. They charge higher and higher taxes to citizens. Yet at the same time the FM wants to pay lower interest rates ! The interest rates in first world countries have fallen in the past 27 years from a peak of 18% to negative now ! In other words, world wide pensions funds are now fully impaired! After all which fund trustee anticipated such low/negative interest rates ? Now imagine the value of the impaired returns when they are finally inflation-adjusted. It yields practically nothing to retired people who are forced to work in old age and loose self esteem. So the question is where has the widening gap between higher taxes earned and lower interest paid gone ?
    The next step predictably will be for parliament to vote for a separate retirement tax-free fund for themselves with loopholes. This will be passed in unison.
    The net impact of this babu high handedness is forced penury for an entire generation in their golden years. Can any government with humongous deficits and financial mismanagement really preach to its educated middle class families about their financial security ? This is a failed western concept and designed simply to help governments fund reckless spending for votes by pushing more losses onto the salaried citizens by stealing their retirement. This is what modern history has taught us.

  • HBK says:

    Thanks a lot
    Especially for the suggestion in the end. I almost got into a fight with my employer while joining for not wanting to be part of EPF, but they went to the extent of saying either u r a part of this or u r not joining.
    I shall try to reduce my contribution now.