EPF interest rate and its tax-free benefits explained

The Employees’ Provident Fund (EPF) remains one of the most preferred long-term investment options for salaried individuals in India. Understanding the EPF interest rate and the tax benefits associated with it is essential before making any investment decisions. In comparison to other saving instruments such as the Public Provident Fund (PPF), where you might use a PPF calculator to estimate returns, EPF offers competitive interest rates along with significant tax advantages.

What is the EPF interest rate

The EPF interest rate is the rate at which the government guarantees returns on your provident fund balance each year. For the financial year 2023-24, the EPF interest rate stands at 8.15% per annum, credited annually to your EPF account. This rate is recalibrated yearly by the Employees’ Provident Fund Organisation (EPFO) based on economic conditions and fund performance.

Compared to instruments like Bajaj Finance FD, which offers fixed deposit rates depending on tenure and age, EPF ensures risk-free returns protected by the government. For instance, Bajaj Finance FD rates for non-senior citizens range from 6.60% to 6.95% for tenures between 12 to 60 months, while senior citizens earn slightly higher rates up to 7.30% per annum.

Tax benefits on EPF contributions and interest

One of the most attractive aspects of EPF is its tax-free nature. Contributions made by employees and employers qualify for deduction under Section 80C of the Income Tax Act, up to a limit of Rs. 1.5 lakh annually. Moreover, the interest earned on the EPF balance is entirely exempt from tax, provided the account has been active for a minimum of five continuous years.

This tax advantage significantly boosts the effective returns from the EPF compared to other options like fixed deposits. While interest from fixed deposits such as Bajaj Finance FD is taxable under the investor’s income tax slab, the EPF interest remains completely tax-free. This makes EPF an efficient tool for building retirement corpus, especially when combined sensibly with products like the PPF or fixed deposits for diversified gains.

Conclusion

EPF interest rate offers a reliable and tax-efficient way for salaried employees to build their retirement corpus with guaranteed government-backed returns. When combined with tools like a PPF calculator to estimate returns from the PPF, investors can design a well-rounded portfolio. For enhanced yield and flexible tenure options, products such as Bajaj Finance FD prove to be excellent complements, especially for those seeking steady income with competitive interest rates ranging from 6.60% to 7.30%.

Balancing EPF investments with Bajaj Finance FD ensures diversification, tax efficiency, and optimised returns suitable for a variety of financial goals. This synergy is particularly beneficial for Indian investors aiming to maximise their long-term savings prudently.