Tax Talk: Investing in EPF & Ulips? Take note of I-T changes – news 07 trends

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Nonetheless, in Funds 2021 the federal authorities has proposed to impose a monetary limit on income tax exemption allowed in respect of investments made by explicit particular person taxpayers in EPF or Ulips.

By Shailesh Kumar

The Workers Provident Fund (EPF) scheme has been one of many well-liked funding selections for the salaried taxpayer. In FY20, EPF had equipped an curiosity price of 8.50%, which is method bigger than that equipped by enterprise banks on time interval deposits. Once more, curiosity income from funding in EPF was moreover exempt from income tax, with none monetary limit. Thus, EPF was a reasonably funding risk, significantly for staff in bigger wage brackets who would make additional voluntary funding in EPF over and above 12% of wage as required beneath EPF legal guidelines.

One other trendy funding instrument for middle-class taxpayers has been unit-linked insurance coverage protection (Ulips). Like EPF, income/ bonus arising from Ulips to the merchants has been exempt from income tax with none monetary limit, which made Ulips a reasonably funding risk. Moreover, Ulips equipped an risk of availing tax-free returns linked to the securities market, which made it all the additional participating submit withdrawal of income tax exemption to long-term capital good factors from sale of listed securities.

Nonetheless, in Funds 2021 the federal authorities has proposed to impose a monetary limit on income tax exemption allowed in respect of investments made by explicit particular person taxpayers in EPF or Ulips.

Tax on EPF
The authorities has proposed that if an individual’s funding in his EPF account exceeds Rs 2.5 lakh in any financial yr starting on/ after April 1, 2021, curiosity earned on such funding in additional of Rs 2.5 lakh wouldn’t be eligible for income tax exemption. This switch is just not going to solely have an effect on staff making voluntary EPF contribution over and above compulsory contribution of 12% of major wage, however as well as these extreme salaried staff, whose annual contribution in EPF exceeds Rs 2.5 lakh even when their contribution is restricted to 12% of major wage. It is also well-known that income tax exemption will proceed in respect of contributions made till March 31, 2021, even when annual contribution in these earlier years exceeded the newly launched monetary limit of Rs 2.5 lakh.

Tax on Ulips
Equally, for Ulips, the federal authorities has proposed that income tax exemption allowed beneath Part 10(10D) shall be on the market solely to those insurance coverage insurance policies issued on/ after February 1, 2021, the place annual premium or combination of annual premium doesn’t exceed Rs 2.5 lakh. It is also well-known that income tax exemption will proceed in respect of Ulips issued till January 31, 2021, even when annual premium in earlier years and even in future years exceeds the newly launched monetary limit of Rs 2.5 lakh in future years.

Taxpayers ought to preserve in ideas these new proposed adjustments in income tax laws, whereas planning their future investments.

The writer is affiliate, Nangia & Co LLP

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