Don’t Worry About the Tax on PF Interest: When a working middle class family in India thinks about working, the first thing that comes to their mind is budget – household budget. Whatever work we do, it will not cause any disturbance in the household accounts, will it? The bank comes to mind first when an ordinary middle class person thinks of investing rupee to secure the future financially.
The money deposited in the savings account in the bank does not give much return so usually the interest is also less.
Over the last few years we have seen interest rates fall sharply. The other option was FD i.e. fixed deposit. The rate of interest on FDs has also come down in some years. There is a private bank which offers interest up to 7%. The maximum interest rate in government banks is four and a half to five and a half percent.
What the average person does
This means that FD is also a loss-making deal. So what does an ordinary person earning a salary do? PF is a bargaining chip to get paid. EPF i.e. Employees Provident Fund is getting good rate of interest. When the general budget was announced on February 1, 2021, there was talk of tax on interest earned on PF. These steps have been taken to deposit more than Rs 1.5 lakh annually. Some people are trying to clear their confusion if they get upset after reading this news.
Tax on basic over Rs 21 lakh only
Typically, 10-20% of basic celery is deposited as PF. Those who earn more i.e. those who get their own higher salary. This applies to them when their PF portion is more than one and a half lakh in a year. In addition, those who use VPF i.e. Voluntary Provident Fund to deposit money in PF and deposit more than Rs 1.5 lakh per annum have to pay tax on interest earned on more than Rs 1.5 lakh. First of all, if a basic salary is more than Rs 20,83,000 per annum, more than Rs 1.5 lakh will be credited at 12% PF deduction. Secondly, even if you have deposited more than Rs 20,883 per month through VPF, your deposit can be more than Rs 1.5 lakh per annum. And you will come to the tax limit.
More than 2.5 lakh is not to be feared
Even if you keep depositing more than Rs 2.5 lakh in PF, there is no need to panic. The reason is that you will usually get more interest on PF than the rupee kept in the bank. If you fall within the 10% tax limit then the effective return you will get on PF will be 7.65%. People within the 20% limit will have an effective rate of 6.8% and a 30% limit will have an effective rate of interest of 5.95%. Don’t Worry About
This is the amount of deposit so far. From the next financial year, understanding the rules, your investment can be increased or decreased as per your wish. If you wish, you can invest accordingly if the full interest earned on PF is tax free. And if you invest more, rest assured that you will get more interest from the rest of the media. Understand budgets carefully, don’t panic without reason, talk openly about them with financial advisors and invest. Don’t Worry About