The workers were dealt a double blow as the tax on provident contribution and interest rates fell to a four-decade low. So they are looking for other options.
The Central Board of Direct Taxes (CBDT) had issued a notification on 31st August 2021 last year that now the interest earned on the contribution of more than Rs 2.5 lakh to the Provident Fund will become a tax liability. This provision is to be implemented in the next financial year 2022-23 from April 1, 2022, where the employer as well as the employer contributes. For GPF, this limit is Rs 5 lakh, where only employees make PF contribution but the interest rate in this is 7.1 percent.
Now a few days ago this year, the Central Board of Trustees of Employees’ Provident Fund fixed the interest rate on PF deposits at 8.1 percent for the financial year 2021-22, which is the lowest level since 1978. This has dealt a double blow to the high-paid workers who contribute a part of their salary to be tax-free. However, such workers can look at other options like PPF, ULIP and ELSS, in which investment can save tax as well.
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PPF
Threshold limits are applicable for different PF schemes separately and are not considered in combination with different schemes. In such a situation, such workers can contribute up to Rs 1.5 lakh to the Public Provident Fund (PPF) so that they can reduce the contribution in EPF / CPF / GPF beyond a limit on which the interest earned would be taxable.
ULIP
ULIPs can also be a better option for workers looking for the option of PF contribution above a limit. ULIPs (Unit Linked Insurance Plans) are offered by insurance companies.
ELSS
Equity Linked-Saving Scheme (ELSS) can prove to be a better option to save tax in the long run. ELSS can not only save tax but also provide great returns as it is linked to equity.
(Article: Amitav Chakraborty)
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