From April 1 this year, interest income from PF contribution (employee’s) of more than 2.5 lakhs per annum will be taxed.
If you deposit additional amount of voluntary EPF i.e. compulsory for higher interest, then stop it immediately. If this amount is invested in debt through mutual funds, then you will get more benefit and risk will also be less.
CA Vikas Aggarwal says that if you deposit voluntary EPF i.e. mandatory amount in excess of interest, then immediately stop it. If this amount is invested in debt through mutual funds, then you will get more benefit and risk will also be less. Stock market expert Sanidhya Agarwal explains that the first thing to be seen in tax planning is how much tax you collect and how much tax is left in the place where you are investing. After this, after paying attention to the investment, the net interest rate received after tax should be removed. By this you will be able to know how much interest you are getting on your investment. This can be understood through various examples.
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The actual return on EPF after tax will remain at 5.85 percent.If your basic salary is Rs 41 lakh per annum, then EPF will be deducted on this amount more than Rs 2.5 lakh. Currently, the interest rate on EPF is 8.5%. Keeping in mind the current 30% tax rate (+ 4% cess), the employees will get 5.85% effective interest after paying tax on contribution to EPF of more than 2.5 lakhs per annum.
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If voluntary EPF is more than 2.5 lakhs, then debt is a good option
If you deposit more than 2.5 lakh rupees in EPF for a higher rate of interest, then in such a situation you will need tax planning. Failure to do so will limit your return to 5.85 percent. Therefore, you can adopt the path of debt funds. Debt funds buy long-term Indian government bonds or state government bonds. Mutual funds also do not have to pay tax on coupons received (interest), which increases income and keeps accumulating. In this way, a good fund is prepared in the long term. While redeeming the fund, investors must pay capital gains tax, the rate of which is currently 20 percent. That is, the highest rate of income tax is about 14 per cent less than the 34 per cent slab. In this case, investors can transfer the money of voluntary provident fund (VPF) to debt fund. This will give them the benefit of lower tax and a big difference in returns.
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Nothing to worry about
Under the existing provisions of income tax, the interest received on the Employees Provident Fund (EPF) is tax free. However, from April 1 this year, interest income from PF contribution (employee’s) of more than 2.5 lakhs per annum will be taxed. Middle-income employees need not panic, but this provision of the budget can affect the employees of the higher income group.