Are you richer or poorer: Here’s the bottomline | Economic Times - Jobs World

Best job in the world

Find a job

Monday, February 1, 2021

Are you richer or poorer: Here’s the bottomline | Economic Times

NEW DELHI: No change in tax rates or slabs means that your income tax payout is, for most people, unaffected by this Budget. But if your salary’s high or you use voluntary provident fund (VPF) contributions, there’s a bit of bad news for you.Because if your PF contribution is above Rs 2.5 lakh annually, interest earned on the additional amount will be taxable. So, let’s say you have an annual salary income of Rs 50 lakh. Typically, about half or Rs 25 lakh would be your basic salary. Your contribution to PF at 12% of basic pay would be Rs 3 lakh. Earlier, the interest earned on all of it would be tax exempt. Now, tax will be payable on the amount above Rs 2.5 lakh, that is on Rs 50,000 in this case. At the current PF interest of 8.5%, that means Rs 4,250 would become taxable. How much tax you end up paying on this depends on what the tax rates and slabs are in the year in which you withdraw the money.One more example: Your total salary is Rs 1 crore and your basic pay Rs 50 lakh. Your PF contribution (at 12%) would be Rs 6 lakh and tax would be payable on interest on Rs 3.5 lakh, that is on Rs 29,750. 80641113Anyone with a monthly PF contribution of up to Rs 20,833 (annually Rs 2.5 lakh) — and therefore a basic pay of up to Rs 1.73 lakh per month — is safe. 80641105The same provisions and calculations apply to any voluntary contribution you’re making to your PF.A similar change in taxation of unit-linked insurance plans under Sec 10 (10D) of the IT Act means that if you were using ULIP as a tax-saving instrument, you can’t do it any longer if your annual premium amount is over Rs 2.5 lakh (under this scheme, the entire premium, and not just the incremental amount is taxable the moment it crosses the threshold). Instead your income from such a scheme would be treated as a capital gain and taxed accordingly. Let’s say you invest in a ULIP with a premium of Rs 10 lakh. Typical returns are around 8%, so you can expect about Rs 80,000 as return. Earlier this was tax free, now you will have to pay 10% or Rs 8,000 on it.

No comments:

Post a Comment

Featured Post

Airlines hoping for more Boeing jets could be waiting awhile