Tax on PF interest: What are the other viable investment opportunities?

By | February 21, 2021

Tax on PF curiosity: What are the opposite viable funding alternatives?

Budget 2021, Union Budget 2020-21, income tax, provident fund, PF, interest on provident fund, alternative investment options, EPFO, National Pension System, NPS, Equity Linked Saving Scheme, ELSSThe tax on curiosity PF contribution over Rs 2.5 lakh wouldn’t have an effect on majority of PF subscribers.

To curb rich individuals from parking extra cash in Provident Funds (PFs) to earn larger tax-free curiosity, Finance Minister Nirmala Sitharaman has introduced within the Union Funds 2021-22 that PF contributions over Rs 2.5 lakh in a monetary 12 months can be taxable from the subsequent monetary 12 months.

“The finances 2021 has positioned a robust emphasis on infrastructure improvement be it social, bodily, or monetary infrastructure to re-energise the Covid-hit financial system. On the direct tax facet, adjustments pertain to simplification of REITS & InVITS and compliance associated bulletins,” S Ravi, Former Chairman of Bombay Inventory Change, Founder & Managing Accomplice a of Ravi Rajan & Co.

“Nonetheless restrictions have been imposed on tax exemption for the curiosity earned on the workers’ contribution to numerous provident funds. Curiosity earned on worker’s contribution above Rs 2.5 lakh a 12 months will now be taxed as strange earnings. The rationale for introducing the measure is to curtail the follow of parking giant sums within the PF account to hunt twin good thing about tax exemption and excessive rate of interest,” he added.

In response to Ravi, tax on curiosity PF contribution over Rs 2.5 lakh wouldn’t have an effect on majority of PF subscribers.

“The Workers’ Provident Fund Organisation (EPFO) is the world’s largest social safety organisations, which maintains near 193.4 million accounts and contemplating solely a small part make an annual contribution upwards of Rs 2.5 lakh, the measure curbs misuse by them,” he mentioned.

Tax on Provident Fund curiosity: Will curiosity on PPF, GPF, CPF contributions additionally change into taxable?

Nonetheless, with the curiosity on extra contributions to be added to their earnings, rich PF contributors would now shift their investments to different various choices to cut back tax liabilities.

“This measure will act as an inhibitor and drive buyers to different viable funding alternatives,” mentioned Ravi.

Listed below are another viable funding choices:

Nationwide Pension System (NPS)

With the commutation half on maturity now tax free, NPS is an effective various for pension seekers.

The vast funding choices additionally make it appropriate for each aggressive and conservative buyers.

“NPS is one such choice, which gives a greater rate of interest that PF and tax environment friendly as effectively,” mentioned Ravi.

Fairness Linked Saving Scheme (ELSS)

ELSS is an effective tax-saving funding choice particularly for fairness buyers. On redemption, 10 per cent capital achieve tax is levied on achieve over Rs 1 lakh in a monetary 12 months.

“ELSS – that provides twin benefit of capital appreciation in addition to tax saving – has decrease lock-in interval (3 years) than PF & NPS,” mentioned Ravi.

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