## How to calculate Pension under EPS

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We have discussed everything about EPS in our series of Articles on EPS.

http://www.wealthcafe.in/basics-of-employee-pension-scheme-eps/

http://www.wealthcafe.in/forms-of-eps/

http://www.wealthcafe.in/is-the-monthly-pension-paid-under-eps-just/

### Monthly pension calculation (Employed after 16/11/1995)

The pension amount for those employed after 16th November 1995 is calculated as follows:

Pension amount = (Pensionable salary * Service period)/70

In order to calculate the monthly pension, in this case, the following points need to be kept in mind:

• Pensionable salary is the average income of the preceding 60 months. Most employers have a restriction on pension contribution to either Rs.1,250 or 8.33%, whichever is minimum. In these scenarios, the maximum pensionable salary would be Rs.15,000.
• Only the basic pay and dearness allowance are considered a salary.
• If an employee has completed over 20 years of service, then two years should be added as a bonus in the equation. According to the rules, the bonus can be also applied for the service before 16/11/1995.
• The new rules make it mandatory for the pension to be more than Rs.1,000 per month.
• An employee is eligible for a pension after completion of 10 years of service.

### 2.      Monthly Pension Calculation for a member who joined EPF before 15.11.1995 have 3 components in the Pension calculation

a) Procedure for calculating the Past Service Pension

• The pension is calculated twice based on the period of employment.
• Once before 16/11/1995 and once after 16/11/1995.
• For calculation of pension before 16/11/1995, the following table can be used. In this table, the pension is fixed based on the pay and period of service.
 Years of past service Up to Rs.2,500 (Salary) Above Rs.2,500 (Salary) Below 11 years 80 85 Between 11 to 15 years 95 105 Between 15 to 20 years 120 135 More than 20 years 150 170
• Find out the period that had elapsed between 16.11.1995 and the date of exit and based on this period locates the corresponding Table ‘B’ Factor. Date of Exit is Date of attaining 58 years for superannuation/early pension, Date of Death for widow pension and Date of Disablement for Disablement Pension.
• Multiply the Past Service Benefit and the Table B factor, which gives the Past.

b) Procedure for calculation of Pensionable Service Pension

• Find out the Category of the member as to whether he belongs to X, Y or Z Category.
• X – Date of commencement of pension is between 16.11.1995 and 15.11.2000 Y – Date of commencement of pension is between 16.11.2000 and 15.11.2005 Z – Date of commencement of pension on or after 16.11.2005.
• Find out the Pensionable Service and Pensionable Salary of the member and substitute the same in the formula given as below.

(Average Salary X Service)/70

• If the formula pension calculated is less than 335/438/635 respectively, for X, Y, Z categories, then only that minimum pension is to be given.

c) Procedure for the calculation of Total Pension-Add the Past Service Pension and the Formula Pension.

• Add the Past Service Pension and the Formula Pension.
• If the total pension is less than 500/600/800 respectively, for X, Y, Z categories, then that minimum pension shall be the total pension.
• But this total pension is for an eligible service of 24 years or more, and if the eligible service is less than 24 years, then this total pension has to be proportionately reduced subject to a minimum of 265/325/450 depending on X, Y, Z categories (only when the minimum pension is given).
• If the total pension itself is more than the minimum, then the proportionate reduction need not be made even if the eligible service is less than 24 years.

Wealth Cafe Tip – We tend to accept EPF the way it is displayed in our passbooks. There is always a scope of error and one should verify every return and investment they are making.

## Reduce taxes without investing any money

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‘People in my office were suggesting me as to how I should make a fixed deposit from now itself to save my taxes at the end of the financial year.’ ‘Do I have an LIC policy? Do you think that would be enough to avoid taxes on my payslip?’ ‘I do not have money at the end of the year to invest to reduce taxes.’ I am sure most of us have either said such statements or heard people  make them. Irrespective of the above, most of us do wonder why our salary is being taxed and we want to know how to avoid paying taxes or pay the least possible taxes ever. I have mentioned ways to reduce your taxes without making any investments i.e. just by understanding your salary structure and its components. It is very important to know that the entire CTC amount of an individual is not taxed at the same rate but various components in the salary structure affect your taxability differently. This is the main reason why we are not paid an X amount as salary but the same is divided into the components. We have discussed the compensation structure in our Article – Understand your salary structure As discussed earlier, salary can be divided into 4 basic components and we shall discuss the taxability with respect to each component now Reimbursements and allowance: You can reduce your taxes on the reimbursements and allowances by submitting proper bills and other required documents/forms withing the due dates provided by your employer.
• Leave Travel Allowance (LTA) – Did you know that the annual leaves and holiday that you were taking would actually help you to reduce your taxes? LTA lets you do just that. LTA remunerates employees for their travel within the country. The amount of LTA would be mentioned in your salary structure. Where you submit appropriate and eligible bills of your travel to your employer, the amount shall be paid to you and will be considered tax-free. There are a few conditions/rules which are to be followed while claiming for your tax-free. We have mentioned the same in our article How to save taxes through LTA.
• House Rent Allowance (HRA) – Your Company pays for your rent and when you submit appropriate rent receipts, no taxes are charged on the same. This benefit is available only to those employees who are staying on rent. Given that in metro cities, many of us are living on rent, it is a great benefit to save taxes. As always, there are certain rules based on which this becomes tax-free, we have mentioned the rules in our Article How to save taxes through HRA.
• Standard deduction towards medical and conveyance: From April 2018, a standard deduction of INR 40,000 is available towards medical and conveyance expenses of the employees. You are not required to submit any bills to claim this benefit. INR 40,000 would be directly deducted from your gross salary to compute the taxable salary numbers. Ensure that the same is deducted when you receive your Form 16.
• Food, telephone, internet and other reimbursements – Some employees have other reimbursement items such as food, telephone, internet, uniform, newspaper etc. which are reimbursable and no taxes will be deducted on these if you submit bills as required by your employer.
Contributions – Payments made by the employer on behalf of their employees towards EPF, NPS, insurance or gratuity for the retirement benefits or otherwise
• Employee’s provident fund (EPF) – Contributions made by the employer and employee (which are deducted from the CTC) is tax-free. The same is not included as a part of your taxable salary. Please refer to our Article – Taxability of EPF to understand the same in detail.
• National Pension Scheme (NPS) – Deductions made from your salary each month towards NPS and your employers’ contribution is tax-free. In fact, NPS provides additional tax benefits to the employees. We have discussed the same in detail in our Article – Taxability of NPS.
• Gratuity – Gratuity is only received when on resignation (after completion of 5 years of service), death or retirement. A part of the gratuity amount received is exempt based on the formula specified under the Income-tax Act. We have discussed the same in detail in our Article – Taxability of Gratuity.
• Insurance – Any premium paid by your employer towards your health insurance, life and others which is included in your CTC is tax-free and the same is not included in your total taxable salary.
Variable salary i.e. Bonus paid in any form is taxable. Bonus is added to your total taxable salary and taxed based on the slab rate you fall under after the receipt of the bonus. Fixed Salary Components: This includes the basic salary, special allowance, Dearness allowance etc. They are generally fully taxable.
• Basic salary is generally is 40% – 50% of the CTC amount.
• Dearness allowance is not paid by many private companies; it is generally paid by government companies.
• Special allowances are the balancing number in your CTC. Whatever may be the amount, it is fully taxable.

## Transfer from EPF to NPS

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Need/Benefit of switching EPF to NPS

EPF and NPS both are the retirement saving scheme and have a provision of pension. Then, what is the need for EPF transfer to NPS? I am listing the reason.

Shift to a government company

When you work in a private company, you have to subscribe to the EPF. But if you switch to the government department, you have to contribute to the NPS. In this case, your EPF balance is not used for retirement saving. Often you have to withdraw it citing unemployment for 2 months. Also, EPF withdrawal may be subject to tax if you have not completed 5 years in the private job.

Want Better Return

EPF is designed to give a retirement corpus to organized sector workers. It tries to keep your investment safe along with a decent return. Whereas NPS gives you a chance to get a better return with some risk. It invests a greater proportion in the share market. That is why NPS may be a better option for those who want to build wealth by taking some risk.

More Transparency

Normally EPF gives more return than the bank deposit. However, you don’t know how did EPF earn. where it invests? Whereas in the NPS, every investment is transparent. You know the mutual fund plans where your money is invested. Every week you get to know the NAV of your mutual fund plan.

Active change of Portfolio

If you want to actively manage your retirement corpus then NPS is a better option. In the NPS you can change your asset allocation twice in a year. Thus you can affect the return of your NPS investment. It is not possible with the EPF.

Extra Tax Benefit

The government has given the extra tax benefit to the NPS (80CCD-1B). You can get an extra tax deduction of up to 50 thousand because of the NPS. This tax deduction of 50 thousand is over and above the 80C limit.

Issues of transferring EPF to NPS

EPF to NPS switch was not very easy. It is not like transfer of money from one account to another account. Following are the hurdles of this switch.

1. EPF withdrawal before completing 5 years in service becomes taxable. The EFPO deducts tax before giving you the corpus.
2. EPFO does not permit premature withdrawal. Neither it recognizes the withdrawal for NPS.

The given process Involves only acceptance of EPF corpus into an NPS account. The PFRDA has released these steps.

### Open NPS Tier-I Account

To receive the EPF amount, you must have an NPS account. You can open NPS account through your employer. Those people who don’t have an employer or NPS facility with them can open an NPS account through the POP. There are many POPs available. An online NPS account opened through the e-NPS is also eligible for getting the EPF balance.

### Submit Request To Employer

If you are a government or private sector employee, you have to approach the recognized provident fund or superannuation fund. It can be done through the employer.

### EPFO or Trust Would Process Application

The provident fund or superannuation fund initiate the fund transfer process. After the due process, it would release the EPF corpus.

### Cheque or DD Issuance

The cheque or demand draft would be issued in the name of either of the following.

In the case of government employee: Nodal Office Name (PAO or CDDO Name)<>Employee Name <> PRAN

In case of Subscriber is a private employee or self-employed:  POP collection account-NPS trust <>Subscriber Name<>PRAN

### Get Letter of EPF Transfer

The EPFO or Trust would also issue a letter telling about the EPF to NPS transfer. You have to get this letter and submit to the present employer or POP. This letter is a proof that your lump sum NPS contribution belongs to the EPF account.

### The Contribution into NPS account

Once you submit the EPF transfer letter along with the cheque, the NPS nodal office or POP updates your NPS account with the latest contribution.

## Points To Note

The EPF transfer amount would not be eligible for the tax deduction as it is not the original investment. It is just a transfer so does not enjoy any extra tax benefit.

You must have an active NPS account. The EPF transfer amount would go into Tier-I account.

The EPF transfer amount should be routed through the employer or POP-PS. The NPS subscribers have to go to POP-SP for submitting EPF cheque/DD.

Unlike EPF, you would not get the whole corpus after the retirement, rather you would get only 40% amount. The 40% -60%  amount would be used to give you a regular pension. You can get 20% of the amount in 10 installments to the age of 70.

## Lesser known facts about Employee Provident Fund (EPF)

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We have discussed the basic of EPF.

Listed below are the specific rules regarding EPF for your reference.

You can increase the contribution to EPF

You can contribute more than 12% mandatory contribution to your EPF account. You can contribute up to 100% of your basic pay if you want but the employer is under no obligation to match your EPF contribution. You will get the benefit of your personal contribution (in excess of the basic limit) in section 80C of the Act. All other rules of EPF will apply to the additional contribution.

EPF withdrawal is taxable

The investment in the provident fund is tax-free. According to the rules of EPF, the maturity proceeds and interest on it are tax-free. We take the tax benefit of EPF contribution. We never think of the tax on EPF Withdrawal amount.

If you try to withdraw the EPF balance before 5 years, you must pay back the tax benefit, you had availed at the time of investment. EPF  will deduct the TDS on the withdrawn amount before depositing the same in your bank account (where money is withdrawn before 5 years).

An employer cannot withhold your EPF balance

After resignation, many employees leave the company without serving the notice period and sometimes on a bad note with their employer. In such a situation, the EPF balance is the only handle to arm-twist the employee. Some employer’s never forward the PF withdrawal form to the regional PF office.

The Employer has no right to do so. The Rules of EPF say that an employer can never withhold the EPF balance. The money never remains with them. The employers are the mere facilitator of the EPF scheme. The erring employer can be also punished for this behaviour.

You can withdraw your EPF balance without the signature of the employee. You can do the same by taking signatures and other formalities from the banker.

You cannot withdraw 100% of your EPF corpus

You can withdraw the EPF corpus if you have been unemployed for 2 months. But this withdrawal would not be for the full amount. The is a new rule of EPF withdrawal. Now, you can withdraw only your contribution to the EPF and interest on it. The employer’s contribution and interest will remain in the PF account till the retirement age  (58 years).

You can opt out of EPF

We generally think EPF is a mandatory contribution. However, this is not the case. EPFO guidelines say that if an employee’s salary is more than INR 15,000 per month he/she can avail the option of not being a part of the EPF scheme. If this scheme has opted, the entire salary is paid out to the employee, without any deduction, towards EPF every month.

Having said that, it is important to note here that an employee has to opt out of Provident Fund at the start of his job and if he/she is part of EPF programme even once in his life, this option of opting out stands null and void.

EPF provides life insurance as well

A lot of people are not aware of this benefit. Let us explain how this works. If a company does not provide insurance coverage to its employees under the group life insurance plan, then the companies are required to contribute 0.5% of monthly basic pay towards Employees’ Deposit Linked Insurance (EDLI) scheme. This contribution is capped at INR 15000. Companies that are already covering employees for insurance are exempted from this plan of EPFO.

Check your personal details with EPFO

Many times people realize at the time of withdrawal or transfer of EPF that incorrect personal details are submitted with EPF. In such cases, you must check and rectify the same while creating an account with the UAN. You must inform your employer to get the same updated.

We will be posting a detailed article on how to change the same through UAN.

## EDLIS – Employee Deposit Insurance Scheme

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We have discussed the basic contributions of EPF and how the money is invested, contributed and received by the employees. There is a component called EDLIS (Employee Deposit Insurance Scheme) of EPF contributions. We have discussed the features of EDLIS as under:
• The EDLI scheme was launched in 1976, and applies to all employers who provide the Employee’s Provident Fund (EPF) provisions to their employees. The point of the scheme is to provide life insurance coverage to all their employees.
• The EDLI Scheme is clubbed and linked to the EPF Scheme and EPS scheme. All employees who subscribe to the EPF scheme are automatically enrolled in the EDLI scheme.
• All of the employees’ contribution goes towards the EPF scheme. The employees do not contribute towards EDLIS. Contributions are made by the employer.
• EDLI contribution by Employer: 0.50% (subject to a maximum of INR.15,000)
Features and benefits of the EDLI scheme:
• Claim amount under the EDLI Scheme is 30 times the salary. Salary is calculated as (D.A. + Basic Salary).
• A bonus of INR 1,50,000 is also payable along with the claim amount.
• The quantum of coverage is directly linked to the salary of the employee.
• Premium payable is similar for all employees.
• Payments are made by the employer to the Provident Fund Authorities.
• Under Section 17 (2A) of the Act, the employer can opt out of contributing to this scheme if the employer has already opted for a better insurance policy for its employees under a different scheme.
• In lieu of EDLI, the employer can also opt for schemes like the LIC Group Insurance Scheme.
EDLI claim procedure:
• The amount payable can be claimed by the nominee of the employee.
• In case there has been no nominee named, the surviving family members of the deceased can claim the amount.
• Under the claims to be made by surviving family members, claims cannot be made by the oldest son or married daughters whose husbands are still alive.
• In case there is no nominee or eligible surviving family member, the claim can be made by the legal heir.
• In case the nominee, surviving family member, or legal heir is a minor – the claim can be made by the legal guardian.
• In order to initiate the claims process, Form 5(which can be found here http://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form5IF.pdf) should be duly filled out and submitted.
• While filling out the claim, it should be kept in mind that: The EDLI Claims are only admissible if the deceased person was actively employed at the time of death. The application for the claim must be attested by the employer.
In case the employer is not available to attest the claim application, attestation must be done with the official seal of either:
Documents required for a claim under the EDLI scheme
• Death certificate:of the EDLI member.
• Guardianship Certificate: If the claim is being made on behalf of a minor family member, nominee, or legal heir, the legal guardian must also submit a guardianship certificate.
• Succession certificate: If the claim is being made by a legal heir of the deceased.
• Cancelled cheque:of the bank account of the claimant in which claim funds are to be deposited.
Example Mr. Nath was employed and was actively contributing the EPF, EPS and EDLI schemes. He drew a monthly salary of Rs.15,000. Upon his death, his nominee claimed the EDLI insurance benefit which was equal to (30 x Rs.15,000) + (Rs.1,50,000) = Rs.6,00,000.

## Basic of Employee Provident Fund (EPF)

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“Every month I save my salary into EPF and it is a great form of investment” I have heard this way too many times. When I asked them if they knew what EPF is and how is EPF a great investment? Not many people were able to answer this question.

People just know that 12% of their salary goes into an EPF account and it is  a great form of investment and savings.  EPF being a primary investment for salaried individuals, you must know everything about it. Hence, we have written a detailed article about everything that you would want to and must know about your EPF investments.

What is EPF?

EPF is retirement benefit scheme that is generally available to all salaried employees and forms an important tool for financial planning.

Basically, EPF is like a guaranteed investment as the amount is deducted from your salary before the same is paid to you and invested. You might skip on your SIP or Insurance premium, but your EPF will be deducted from your salary each month.

Regulatory guidelines

Under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, EPF has two components namely Employees’ Provident Fund Scheme 1952 and Employees’ Pension Scheme 1995 (EPS). These are two different retirement saving schemes under which any salaried individual is covered if he/she is drawing more than INR 6,500 per month as basic salary.

Structure

There are 2 contributions into the EPF.

• Employee, 12 % of your basic salary (and DA if any) is invested into the EPF account.
• Employer contributes further 12% of your basic pay from his side into the EPF.
• Thus, total of 24% of your basic pay (plus DA, if any) is invested each month..

Contribution to EPF & EPS

There are a few components of EPF such as below.

 Scheme Employee’s Contribution of basic pay (+ DA if any) Employer’s Contribution of basic pay EPF 12% of basic pay 3.67% (where salary is upto INR 15,000) 12% of basic pay less 1250 towards EPS (where salary is more than INR 15,000) EPS Nil 8.33% of basic (where salary is upto INR 15,000 INR 1250 per month (where salary is more than INR 15,000) EDLIS Nil 0.5% (capped at maximum of INR 15,000)

EPF – Employee Provident Fund

• The money contributed towards EPF is invested and managed by a trust and the employee earns interest from 8% to 12% on the same (depending on the results of a specific year).
• The corpus of EPF is received as a lumpsum amount on fulfillment of certain conditions.
• Entire Employee’s contribution goes towards EPF.
• A part of employer’s contribution goes towards EPF.
• Where the salary is INR 15,000 3.67% of the same is contributed towards EPF.
• Where the salary is more than INR 15,000, the employer has an option of investing INR 1250 towards EPS and balance towards EPF and EDLIS. The same depends upon the Employer.

EPS – Employee Pension Scheme

(Refer our Article on EPS )

• EPS offers pension on disablement, widow pension, and pension for nominees.
• No interest is earned on EPS. If your corpus of INR 3 lakhs is accumulated through EPS, you would get INR 3 lakhs as pension money.
• No amount from the employee contribution goes towards EPS.
• A part of employer contribution goes towards EPS.
• Where salary is INR 15,000 or more, 8.33% of INR 15,000 is compulsory contributed towards EPS i.e. INR 1250 each month is to be contributed to EPS.

EDLIS – Employees Deposit Linked Insurance Scheme

(Refer our Article  on EDLIS )

• Provides for a lump sum payment to the insured’s nominated beneficiary in the event of death due to natural causes, illness or accident, while in job.
• Premium for the EDLI is entirely funded by the employer, which contributes 0.5% of monthly basic pay (capped at a maximum of INR 15,000) as premium for life cover in case the organization does not have a group insurance scheme for its employees.
• Maximum amount insured under EDLIS is INR 6 lakhs.

Tax benefits

The employer contribution is exempt from tax up to 12% contribution while employee’s contribution is eligible for tax benefit under Section 80 C of the Income-Tax Act, 1961. EPF is under the EEE norm currently indicating that the money invested, interest earned and the money withdrawn after a specified period (5 years) are all exempted from income tax in the hands of the employee.

Nomination

EPF provides you with nomination facility whereby mother, father, spouse or children can be nominated for receiving the proceeds at the time of death of an employee. Government, currently, doesn’t allow nominating siblings.

Transfer and withdrawal policy

• If a person is not employed for two months at a stretch, there is a provision by which he/she can choose to withdraw EPF.
• It is advisable to transfer the existing EPF with previous employer to new employer while switching jobs.
• The process of transfer of EPF is now seamless with the introduction of Universal Account Number (UAN) which is discussed in detail in subsequent para.
• If you withdraw the EPF amount before completion of five years with an employer the corpus withdrawn is taxed as per your current income tax slabs as the amount withdrawn is then added to your gross salary.
• Further, withdrawal is generally not permissible if the person is still working.
• Withdrawal is possible in following cases: children’s higher education, marriage, medical treatment, home loan repayment, construction of house, purchase of flat, etc.
• Non-refundable advances are also allowed after having completed minimum five years of membership.
• In case your service is less than 10 years and you have opted for withdrawal on account of no job, an employee is entitled for 100% of EPF including interest on EPF. In addition, employee is also entitled for receiving EPS contribution that is computed based on withdrawal benefit (on pension). Refer our Article on EPS to understand the same in detail.

Receiving pension

An employee start receiving pension from EPS amount after completion of minimum 10 years of service and attaining the age of 58 or 50 years. The pension amount is payable to the subscriber until he is alive and in the event of death of the employee, members of his family -whoever is nominated is entitled for the pension. Monthly pension is determined based on ‘pensionable service’ and ‘pensionable salary’ for which the following formula is generally used:

Monthly pension = (Pensionable salary X Pensionable service) ÷ 70

It is worth noting here that the pensionable salary is nothing but your basic salary on which you have paid EPS premium. Thus, monthly pension will have received will be nowhere closer to real CTC.

Top-up on EPF (Voluntary Provident Fund)

Yes, you can always invest more than 12% of regular contribution. However, any amount over and above EPF is termed as Voluntary Provident Fund or the VPF. In this case the excess amount is invested in EPF and is eligible interest benefit.

UAN services and other recent developments

UAN is a unique number assigned to an employee and it indicates that the subscriber is availing Employees’ Provident Fund Organization (EPFO) service. EPFO generally manages the money in your EPF account.

UAN number is fixed throughout the lifetime and has portable flexibility. Thus, when an employee changes job his new EPF account which will have different account number and will be opened by new employer can be linked directly to UAN.  Thus, UAN acts as an umbrella of multiple EPF IDs allotted to an employee by different firms.

EPFO, in a recent development, introduced the facility of linking Aadhar (unique id) to UAN. This would help the member avail facility in a better and seamless manner. The facility is available at the official website http://www.epfindia.gov.in under Online Services section.

• Submit claims directly to EPFO without any mediation of employer
• Link multiple EPF accounts allotted over the years
• Edit and update personal details

Refer our Article to understand the interest calculation on EPF and the amount due to you over a period of time.

EPF contribution is definitely one of the best investments for retirement. It is risk free, tax free, long term debt investment which gives approximately a return of 9.7% post taxes and helps salaried people to build on a corpus for retirement or any other financial need over the long term.

## Tax benefits of NPS

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National Pension Scheme (NPS) became a famous investment module amongst the high tax bracket income earning individuals because of the additional tax benefit that is included in these investments. NPS, which is a voluntary, defined contribution retirement savings scheme, enables the subscriber to accumulate savings during his or her working life. NPS offers two types of accounts – Tier I and Tier II. The Tier 1 account is non-withdrawable till the person reaches the age of 60. Partial withdrawal before that is allowed in specific cases. (Refer our Article on NPS withdrawal) On the other hand, the Tier II National Pension Scheme account is just like a savings account and subscribers are free to withdraw the money as and whenever they require. We have written a detailed article on the features of NPS. Income Tax Benefits You Need To Know On Tier 1 Accounts
 Section Deduction allowed Amount Who can claim 80CCD(1) Employee contribution upto 10% of the basic + DA Upto INR 1.5 lakhs including other 80C deductions Employees. Self-employed can claim 20% of their annual income. 80CCD(2) Employers contribution upto 10% of basic + DA Employers Contribution (No Cap) Only salaried individuals and not self-employed. 80CCD (1B) Additional benefit of INR 50,000 over and above the benefit in 80CCD (1) Upto INR 50,000 Employee, self-employed or general citizen.
Income tax on partial NPS withdrawal
• when you withdraw before 60 years.
NPS allows partial withdrawals for specific purposes before the subscriber reaches the age of 60. 25 per cent of the contribution made by a subscriber has been exempted from income tax. Anything above that will be taxable as a part of their taxable salary.
• When subscriber turns 60
According to the current tax laws, up to 40 per cent of the corpus withdrawn in lump sum is exempt from tax when the subscriber attains the age of 60.The balance 60% is to be invested into buying an annuity product. The amount invested in annuity is also fully exempt from tax. However, income received in the form of annuity is taxable.

## Leave Travel Allowance – LTA

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Leave Travel Allowance (LTA) is my favorite allowance. As per LTA, the government gives us tax benefits for our holiday. It is the best tax saving scheme ever – as I just don’t save tax, I take a vacation too!! As per this allowance an employee gets to cover his travel expenses when he is on leave from work by his employer. Sometimes it is also known as Leave Travel Concession (LTC). LTA is exempt from tax u/s 10(5) of Income Tax Act, 1961. It is the travel concession or assistance received by you (an employee) from your employer for yourself and your family towards your travel expenses within India while you are on leave from work or post-retirement or termination of service. Family includes:
• Spouse of individual
• Children of individual
• Parents of an individual (mainly or wholly dependent on the individual)
• Brothers and sisters of an individual (mainly or wholly dependent on the individual)
There are certain rules that are to be followed:
• LTA amount is generally fixed by the employer and is a part of your compensation structure (refer our article Understand your salary structure)
• Thus, the relevant expenses incurred up to the specific limit are tax-free.
• To claim the benefit, you must have a copy of your travel tickets and bills.
• Expenses incurred only on traveling are permitted. Expenses made on food, shopping, etc. are not tax-free.
• One drawback is that you cannot claim tax-free LTA each year. An exemption is allowed for only two travels within a block of four years.
• LTA covers only domestic travel, i.e. only within India. International travel is not covered under this.
What are LTA block years? An employee cannot decide his/her own block of four years depending on when they start the job. The blocks are fixed in the income-tax act. Exemptions can be claimed twice during each block period. The current block consists of the following 4 years 2018, 2019, 2020 and 2021. List of Expenses Exempt under LTA In case of travel by air The economy airfare of national carrier by the shortest route or the actual amount spent on travel whichever is less is exempt from tax. In case of travel by rail The A.C. first class rail fare by shortest route or actual amount spent on travel whichever is less is exempt from tax. If the origin and destination spots of the journey are connected by rail but the journey is performed by other modes of transport and not air or rail
• The A.C. first class rail fare by shortest route or actual amount spent on travel, whichever is less is exempt from tax.
If the origin & destination points are not connected by rail or air (partly/fully) but connected by other recognized Public transport system
• The first class or deluxe class fare of such transport by shortest route or actual amount spent on travel, whichever is less is exempt from tax.
If the place of origin & destination are not connected by rail or air (partly/fully) and also not connected by other recognized Public transport system
• The AC first class rail fare by shortest route (assuming that the journey was performed by rail) or the amount actually spent on travel, whichever is less is exempt from tax.
What is Carryover Concession? If you did not use LTA provided by your employer either once or twice (the permitted limit) in a 4 years block period, then you can still claim LTA exemption by using LTA in the year immediately succeeding the 4 years block period. It is known as carryover concession. For Example, Mr. Shah claimed only one exemption during the 7th block of years which lasted from 2014-17. He still has one exemption remaining. So when can he claim it? He can claim this concession in the next year, i.e. 2018 which is a part of the next block. So, in the next block of 2018 – 2021, he can claim 3 exemptions in total but he needs to claim carryover concession of the previous block (2014-2017) in 2018 only and not later than that. Example 2 – Mr Iyer had a LTA of INR. 30,000 per annum, in his compensation structure.
• He did not travel anywhere in 2018 and thus, no LTA was claimed by him. He transferred the same to 2019.
• He traveled in 2019 incurred an expense of INR 40,000
• He submitted the proofs and will get an LTA of INR 40,000 from his employer. All of this is tax free INR 30,000 from 2018 and INR 10,000 from 2019.
• In 2020, he again traveled and thus, claimed LTA of INR 35,000 which was given to him tax free from his employer.
• In 2021, balance INR 45,000 was paid to Mr Iyer (INR 120,000 – INR 40,000 – INR 35,000).
• However, Mr. Iyer will get only INR 36,000 in hand as INR 9,500 was deducted towards taxes by his employer indicating that the same was not tax-free.
• Mr. Iyer has claimed the LTA twice in 4 years i.e. 2019 and 2020 and thus the balance payment received in 2021 was not tax-free.
• You will have to check with your employer to check on this carry forward of LTA balance to next year. Some employers prefer clearing the balance in the same year itself.
Thus, if you want to save taxes on your salary, take a vacation with your family in India and maintain all your travel tickets to claim the LTA benefits. LTA is the only allowance which lets you travel and save taxes. In spite of LTA being such an easy allowance,  many people do not claim LTA (i.e. they do not submit appropriate forms and proofs to their HR teams within valid timelines) and end up paying taxes on their LTA allowance.

## New EPF Rules – 2018

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he EPF account consists of contributions from the employer and employee. However, the money in an EPF account cannot be withdrawn at whim.

Here are 10 important rules about EPF withdrawal:

1. Money from the EPF account cannot be withdrawn during employment, unlike a bank account. EPF is a long-term retirement savings scheme. The money can be withdrawn only after retirement.
2. Partial withdrawal from EPF accounts is permitted in the case of an emergency such as medical emergency, house purchase or construction, and higher education. Partial withdrawal is subject to limits depending on the reason. The account holder can request online for partial withdrawal.
3. Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus 1 year before retirement, provided the person is not less than 54 years old.
4. The EPF corpus can be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.
5. The EPF subscriber has to declare unemployment in order to withdraw the EPF amount.
6. As per the new rule, EPFO allows withdrawal of 75% of the EPF corpus after 1 month of unemployment. The remaining 25% can be transferred to a new EPF account after gaining new employment.
7. As per the old rule, 100% EPF withdrawal is allowed after 2 months of unemployment.
8. EPF corpus withdrawal is exempted from tax but under certain conditions. Tax exemption on EPF corpus is permitted only if an employee contributes to the EPF account for 5 continuous years. The EPF amount is taxable if there is a break in the contribution to the account for 5 continuous years. In that case, the entire EPF amount will be considered as taxable income for that financial year.
9. Tax is deducted at source on premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs.50,000, then TDS is not applicable. Keep in mind, if an employee provides PAN with the application, the applicable TDS rate is 10%. Otherwise, it is 30% plus tax. Form 15H/15G is a declaration form, which states that a person’s total income is not taxable and thus, TDS is avoidable.
10. An employee does not have to await approval from the employer for EPF withdrawal anymore. It can be done directly from the EPFO, provided the employee’s UAN and Aadhaar are linked, and the employer has approved it. EPF withdrawal status can be checked online.

## Is the monthly pension paid under EPS just?

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The government has fixed the monthly pension benefit at 1,000 INR from the financial year 2014-15. Those who started job after 1 Sep 2014 and earning more than 15,000  INR in basic and DA will not be contributing to the Pension Scheme. Before Sep 1, 2014, it was Based on a maximum employment period of 35 years, and a maximum contribution of Rs 6500, the maximum amount of pension as per the Pension formula would be = 6500 * 35)/70 = Rs 3,250 per month or  Rs. 39,000(3250 * 12) per year. Our article How to calculate your pension under EPS will explain the same in detail

• Maximum Pension one can get is 7,500 INR per month.
• Minimum Pension one can get is 1,000 INR per month.

Is the Monthly Pension paid under EPS just?

The amount of pension is meager. If one would have invested 541 INR in a Debt Mutual Fund at the rate of 8% for 35 years one would get 12,49,263 as maturity amount. If this maturity amount is put in buying the Pension plan and put the above amount 12,49,263 INR in the premium calculator of LIC with an option as Annuity payable for life, one would get a monthly pension of 10,150 INR which is much more than 3250 INR.