PF Options given by Employer

Hi, My new employer is giving me an option to choose if I want to contribute 12% of basic to PF or just 2%. My initial thought was to go with the 2% option and invest the remaining 10% in ELSS/PPF for better returns and liquidity. However, what about an equal contribution by the employer? Their contribution is reduced from total Income, right? Please note that employer contribution to PF is part of CTC, not above CTC.

It seems it is best to maximize PF contribution to 12% so that employer's contribution will be exempt upto 12% also. Or have I got it wrong?

asked Jul 13 '12 at 17:30 by pompom 16134


EPF provides dual tax saving as employer contribution does not become part of taxable income, so that option is better. So automatically your taxable income is reduced by employer contribution. If employer contribution falls, it would move to taxable income.

There are one disadvantage for EPF too. Money gets locked and withdrawal is painful and time consuming.

Employer contribution of maximum 12% is allowed under 80CCD for tax deduction. There is no such limit on employee contribution. If somebody contributes more than 12% through VPF (voluntarily provident fund) then also it would be allowed for deduction u/s 80C upto Rs 1 lakh.

answered Jul 18 '12 at 09:11 by Pankaj Batra 5.2k320

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Asked: Jul 13 '12 at 17:30

Seen: 1,668 times

Last updated: Jul 18 '12 at 09:11