Budget 2021 has restricted avenues for tax-free returns for middle-class taxpayers. From April 1, returns on investment of more than Rs 2.5 lakh in two of the most popular instruments — provident fund and unit linked insurance plan (ULIP) — will be taxed. This, say industry sources, will bring ULIPs on a par with mutual funds, doing away with the edge they have had since 2018 when long term capital gains was introduced.
So far, returns on investment of any amount in voluntary provident fund (VPF), along with EPF and ULIP, are tax-free on maturity.
With this amendment, return on investment up to Rs 2.5 lakh in PF will remain tax-free while the return on the portion exceeding that amount will be treated as income in the investor's hand. This portion will be taxed at the rate at which the investor’s income is taxed, said Sonu Iyer of Ernst and Young.
In case of ULIP, if the investment in a year exceeds Rs 2.5 lakh, the investor will not get the benefit of tax exemption at all. The entire income will be taxed at the rate of 10% plus surcharge, treating the ULIP as an equity-oriented investment plan, said Jay Mehta (Partner) PWC India.
The Memorandum Explaining Provisions of Finance Bill, 2021, says there are instances of some employees contributing huge amounts to PF, and the entire interest accrued being exempt from tax under clause 11 and clause 12 of Section 10 of the Income Tax Act. “This exemption without any threshold benefits only those who can contribute a large amount to these funds as their share,” said the memorandum.
This story is from the February 02, 2021 edition of The Times of India Hyderabad.
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This story is from the February 02, 2021 edition of The Times of India Hyderabad.
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