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.
