If you invest a large amount of money in a provident fund through a voluntary PF arrangement, you may be unhappy with the budget provision. People usually deposit more amount in PF for assured tax-free returns with higher interest rate than Small Saving Schemes or most bank FDs. Huh. But the government has proposed to limit the tax-exemption to interest earned through annual contribution to a PF of more than Rs 2.5 lakh during a financial year under a provision of Budget 2021.
Adil Shetty, CEO of BankBazaar.com, states that it would be appropriate to note here that this provision will be applicable on and after April 1, 2021 on the interest received by the employee on the annual contribution of more than Rs 2.5 lakh. Till now the interest earned on PF was exempted from income tax.
What has Nirmala Sitharaman said
In the budget provisions for the upcoming fiscal, Finance Minister Nirmala Sitharaman said “To rationalize the tax exemption on income earned by high-income employees, it is proposed that up to Rs. 2.5 lakhs of employees in various provident funds Tax rebate will be given only on interest received till the annual contribution of Rs. 1. This restriction will be applied only on contribution made on or after 01.04.2021. ” Explaining his point later, Finance Minister Nirmala Sitharaman said, “The EPFO is for the welfare of the workers and the move will not affect the employees. It is only for those investing in EPFO on a large scale who get tax benefits.” And also get 8% assured return. ”
Interest on PF is more than small savings schemes
It is a fact that retirement fund body EPFO (Employee provident fund organization) has credited an attractive 8.5% interest rate in the accounts of six crore subscribers in the financial year 2019-20. Whereas, interest rates of 7.1% on Public Provident Fund (PPF) and 7.6% on Sukanya Samridhi Yojana (Sukanya Samridhi Yojana) and 7.4% on Senior Citizens Savings Scheme in the fourth quarter (January-March, 2021) of the financial year 2020-21 Was provided
What is your strategy now
Before you reschedule your investment strategy for the next financial year, check whether your annual PF Contribution is more than Rs 2.5 lakh. For most salaried individuals, their monthly PF contribution is less than Rs 20,883 / -. Expenditure Secretary in the Union Finance Ministry TV Somanathan has commented on the budget speech for the year 2021 “People contributing up to the amount we have shown, 1% from the total contributors to EPFO Less than. ”
If you have more salary then do this
If you are a person who invests heavily in VPF, and your total PF contribution (including compulsory contribution) is more than 2.5 lakhs a year, then you have to take care of this proposal in the budget. If, for example, your annual compulsory PF contribution is Rs. 60,000 / – (or Rs. 5,000 / – per month) and you are in the VPF Rs. 2.4 lakhs (ie, the total contribution is Rs. 3 lakhs, ie the maximum limit of 2.5 lakhs for tax exemption. 50,000 / – more), you can reduce your annual VPF contribution by Rs. 50,000 / -, so that you can get the maximum tax rebate benefit. It is also necessary to note here, that while making your calculations, you will also have to check the new salary code which will be applicable from 1 April 2021. Under this, your basic salary, Must be at least 50% of your total income. Which means that your salary can be restructured and consequently your basic salary may be higher which may lead to higher mandatory PF contribution. Make sure you consider it.
If there is more PF contribution then some options can also be adopted
If you feel that your PF Contribution amount is high and reducing it can lead to hindrance in your retirement goals. So you can consider alternative investment instruments based on your return expectations, tax tolerance and liquidity requirements. Such as Equity Fund SIP, NPS. If you meet a certified investment planner, he will suggest some other options.
