Budget 2021 has left personal income tax rates unchanged. Except for some procedural relief, no monetary comfort was announced for small taxpayers. Although the Covid cess did not make its way — feared the most in pre-Budget discussions — high-income earners and high networth individuals (HNIs) did lose some tax benefits linked to employee provident fund (EPF) and high-premium unit-linked insurance policies (ULIPs) in which they increasingly invest for tax-free returns.
Mixed Bag
From 2021/22, if you contribute more than ₹2.5 lakh in a year in EPF, the interest income will be taxable. For example, if total contribution is ₹3 lakh, the interest earned on ₹50,000 will be taxable. “If interest is paid at 8 per cent, then ₹4,000 will be added to taxable income and taxed accordingly,” says Anil Chopra, Group Director, Financial Wellbeing, Bajaj Capital. “The move will impact high-salary earners and especially those who have opted for voluntary provident fund (VPF). Typically, 12 per cent of basic salary is contributed towards PF, but rules allow one to contribute a higher amount voluntarily. The government seems to disincentivise VPF and wants people to either invest elsewhere or spend more.” It doesn’t apply to employer’s contribution to the EPF.
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