Now, tax will have to be paid on depositing more than 2.5 lakhs in EPF. No need to panic. Tax relief can be raised up to 4 lakhs using this strategy.
Many rules have been changed in the budget for investors. Now the return has been taxable with some conditions. In such a situation, if you make a small change in your strategy as an investor, then you will also be able to avoid paying tax and will also get excellent returns. In this budget, the returns on Employee Provident Fund i.e. EPF / VPF and ULIP have been made taxable. First of all, we know the rules of change and then understand about smart strategy.
The EPF has been capped in this budget. Now if you invest more than 2.5 lakhs in a financial year in EPF or VPF, then the income earned from the interest on additional funds will be added to your income. After this, according to your tax slab, you will have to pay tax on it. The investment limit in ULIP has also been fixed at 2.5 lakh. Capital gains tax will have to be paid if you invest more than that annually. Employee Provident Fund comes under EEE category. There is a tax exemption in three phases. Similarly, ULIP also comes in EEE category.
EPF gets 8.5% tax free return
The interest rate currently on EPF and VPF is 8.5 percent. If you invest in it, you get the benefit of deduction under 80C. The annual interest is also tax free. Apart from this, maturity is also tax free. This is the reason that investors are very attracted to it, because it is tax free at all three levels. Return on investing in it is fixed. At this time, FD gets 4.1 percent return. Tax is levied separately. Now the capping on EPF is 2.5 lakhs. If you invest more than that, the additional interest income will be taxable. However, tax experts say that VPF (on depositing more than 12 per cent as EPF) gives a return of 5.95 per cent despite being taxed at 30 per cent. In such a situation, despite being taxable, it is better than Kisan Vikas Patra (KVP), National Saving Certificate (NSC) and bank FD. Interest income is taxable on all three.
EPF is giving better returns even after tax
Financial experts say that those who invested in VPF for EEE benefit will have to change their strategy. If you invest after the limit of 2.5 lakh, then the net return is only 5.95 per cent. In such a situation, Public Provident Fund ie PPF is a better option. The annual return on PPF is 7.1 percent. It also comes under the EEE category, as well as PPF is different from the 2.5 lakh cap. An annual investment of 1.5 lakh rupees can be done in PPF. The return will be 7.1 percent which is tax free. In such a situation, if the EPF limit is met, up to 1.5 lakh can be invested in PPF. In this way, zero tax can be availed by investing up to 4 lakhs annually.
Know the changed rules related to tax on investment in ULIP
In Budget 2021, Nirmala Sitharan announced taxation of ULIPs. If someone’s premium is less than 2.5 lakh in the entire financial year, then under the EEE category, they will continue to get tax benefits in all three phases. If the annual premium is more than that, then the investor will be taxed. Currently, the investment in ULIPs was more than the mutual fund, because it was completely tax free. Now ULIP Schemes will also be taxed like mutual funds. Like mutual funds, capital gains tax will have to be paid on withdrawal in ULIPs. There are two types of capital gains tax. Capital Gain Tax is 15% on withdrawal within 12 months. Long term capital gains tax is 10% on withdrawal after 12 months. Capital gains tax up to 1 lakh has been kept in it. The same rule will now apply to ULIP maturity. However, its only session is that the annual premium amount should be 2.5 lakh or more. This rule has been applied to the plan after 2 February 2021. If withdrawal from ULIP is done then the lock-in period is of 5 years.
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