Synopsis
On the plain reading of the budget documents, it appears that tax will apply to the interest earned on contributions made to Employees Provident Fund (EPF), Voluntary Provident Fund (VPF) as well as Public Provident Fund (PPF).
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An employee contributing Rs. 2 lakh to EPF and Rs. 1.5 lakh to PPF during a year will still enjoy the tax-free status of the interest income.
Budget 2021 has proposed to levy income tax on interest earned by an employee/person on his/her contribution in excess of Rs 2.5 lakh in a financial year to a provident fund. On a plain reading of the budget documents, it appears that tax will apply to the interest earned on contributions made to Employees Provident Fund (EPF), Voluntary Provident Fund (VPF) as well as Public Provident Fund (PPF). However, tax experts have clarified that there are separate limits for EPF/VPF and PPF i.e. contributions to PPF and EPF/VPF will not be aggregated for the purpose of calculating the Rs 2.5 lakh limi
If you want to invest more, the VPF is your best bet. In the 30% tax bracket, it would still give 5.85% returns, which is higher than what other fixed income options offer. This calculation assumes that the EPF rate will remain at 8.5%.
B Negative: Two tax-free options go poof
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Last Updated: Feb 02, 2021, 09:05 AM IST
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Synopsis
The tax on PF interest comes after the last budget had capped the tax exemption on employers’ contribution to PF, NPS and superannuation fund to Rs 7.5 lakh. That impacted only employees with very high salaries. This year’s proposal has a wider impact.
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Interest on employee PF contribution and ULIP premium over Rs 2.5 lakh a year are now taxable.
NEW DELHI: Two widely preferred tax-free options for high-income earners have been made unattractive by the budget.
First, interest earned by employees’ Provident Fund contributions above Rs 2.5 lakh a year will now be taxed at the prevailing income tax rates. Employers’ contribution is not part of this.
Finance Minister Nirmala Sitharaman's third budget in two years was one that registered unprecedented fiscal deficit, an intent that is definitely encouraging for an economy that has been beaten to the ground by a 'once in a century crisis'.