One of the draconian laws in this country (thank God for tardy implementation!!!) is the tax on your retirement products. Please read this carefully, it has huge implications for you.

1. When you take up a job you start saving a part of your income in a provident fund. This is mostly compulsory..but some companies (which are too small, too rich, or too unsure of its long term existence) do not have any provident fund.

2. Your employer also contributes to the fund…and the fund grows at about 8% per annum…and could be a nice round sum when you retire.

3. Your friendly neighborhood ‘LiC uncle’ sells you a LIC Pension plan and you start saving Rs. 12,000 a quarter…so about Rs. 50k a year.

Very good. Now what happens when you withdraw the money?

Well, well when the money comes to you it is TAXED. At the full rates.

Suppose you have bought a regular pension plan (a classic pension plan as it is called)….YOU CANNOT WITHDRAW IT. PERIOD. You just cannot withdraw it. Even if you were on fire and you needed the money, you cannot withdraw it. AFTER ALL IT WAS CLEARLY for your retirement, right?

What happened if you bought a ULIP? (Damn Subra who listens to him anyway?)….the RM / IFA tells you ‘sir you can withdraw it when you wish” – well that is how the PRODUCT IS DEFINED.

What happened is that the RM forgot to tell you that it is taxable. Sorry. He did not know.

I have told this to a million people, and NOBODY, nobody thought this is a GREAT PIECE OF ADVICE. Believe me, it is. You owe me a big huge fee for telling you about this. It has saved you tons of money. Of course I know people who did not understand this ….and still went and bought pension plans. God save them.

What happens if you have money in Provident fund…and you wish to withdraw the same…?

Well there is now a funny provision saying “if you withdraw your Provident fund BEFORE 5 years of service, the amount will be included in your current income and be taxed accordingly. To ensure that this happens, there is a TDS introduced to ensure..that this provision is adhered to….

http://timesofindia.indiatimes.com/business/india-business/Now-tax-to-be-levied-on-PF-withdrawn-before-five-years/articleshow/47035959.cms?utm_source=facebook.com&utm_medium=referral&utm_campaign=TOI

  1. The tax for withdrawing from PF before 5 years is perhaps to discourage people from raiding their PFs for money. It can be considered somewhat similar to exit loads that MFs have for withdrawing before a certain time. Ofcourse, the tax is a lot higher.

  2. Sir, as far as I know, if one withdraws from EPF before 5 years it is already taxable. Only TDS provision has been newly implemented.

  3. Beauty of modern capitalistic financial institutions is that they beg the public for their money for investment and the public begs on maturity to get back their own money!

  4. There is this age 54 clause that i am trying to understand, something confusing with penalties for early withdrawal…what doe that mean, Subrabhai?

  5. i have no clue Mira D. I have no pension plan. if the full amount is going to be taxed in my hands, my reasons for NOT BUYING is firmly in place.

  6. My understanding is ULIP( Life insurance ) is taxable if withdrawn before completion of 5 years and ULPP( pension plans) are taxable at withdrawl regardless of the time. Am I correct?

  7. “Well, well when the money comes to you it is TAXED. At the full rates”

    Isnt EPF following EEE – that is, the money is exempt when it comes to me finally…am i missing something…has there been a change to this..

  8. Or are you referring to EPS…in which case, isnt the title of the post misleading..because PF is not taxable at this point…also i would believe that if today, April 2015, govt makes it taxable, only interest on amount invested after April 2015 should be taxable, but that invested before this date should be non taxable…

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