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What Should You Do With Your Old Inactive EPF Account?

I have come across many individuals who have changed jobs or quit their jobs and have their EPF account lying dormant. Some are lazy and some just do not know what to do. And others believe that they are earning interest on the balance lying in their EPF account.

EPF currently provides the tax-free 8.5% rate of interest. This is one of the best debt products which is offering such high returns with utmost safety. Hence, many salaried usually not withdraw their EPF and keep it as it is. However, there are certain rules to it. Don’t blindly believe that you can keep your EPF account as long as possible.

Existing Rules of EPF

Any EPFO Account which fails to make contributions for 36 continuous months (3 Yrs) is called an INOPERATIVE Account. In addition to this, if you applied for a withdrawal but due to wrong address, bank details, or some other reasons you fail to claim the amount and laying with EPFO for 36 months (3 Yrs) from the date of it become payable are also classified as INOPERATIVE Accounts.
However, later on, EPFO clarified that interest will be payable on such a non-contributory period for up to the age of 58 years of the member, this 3 years definition turned useless. As per the current rules, EPFO will credit the interest on such non-contributory accounts up to the age of 58 years. After 58 years, the account will be treated as INACTIVE (but not immediately after 3 years non-contributory period).

The retirement age for EPF is 55 years. Hence, EPFO will pay you the interest up to the age of 58 years (Retirement age+3 Yrs).

However, interest earned on such inactive accounts is taxable income for you. If you resign, retire, or get terminated from your job, but do not withdraw your EPF immediately then interest income earned on your EPF balance is taxable during this non-contributory period. The interest income earned during your employment remains tax-exempted though.

How much interest will you earn in an inoperative EPF account?

Unclaimed money from EPF accounts, as well as from small saving schemes, insurance companies, etc. was supposed to be transferred. As per the Senior Citizens Welfare Fund (SCWF) regulations, after an account has been classified as inoperative for ten years, the amount remaining in it is to be transferred to SCWF. If you do not withdraw the EPF account, then it will be moved to the SCWF account, where it will earn the interest rate of SCWF (declared by Govt on annual basis). The recently declared interest rate on Senior Citizen Welfare Fund interest rate for FY 2020-21 is 5.81%.

So if you keep your money in EPF accounts untouched after 10 years, it will only earn 5.81% (as of today). This interest is determined every year by the GOI.

Financial Conclusion: what you should do?

Your account will turn inactive only when you reach the age of 58 years and not withdraw the EPF balance (Earlier it was 3 years from the non-contributory period).
From the date of non-contributory EPF (i.e. the day you stop working and contributing to your EPF account) to the time of withdrawal, you are eligible to earn the interest. However, such interest is taxable.
If you keep your non-contributory EPF accounts for more than 10 years, then EPFO will move your account to SCWF.
Your EPF account will remain with SCWF for the next 25 years and earn the interest rate declared by Government on such SCWF
After the completion of 25 years with SCWF, if you still not withdraw your EPF account, then Government will forfeit the money. To get back the money, you have to knock the court.

Do remember that such a movement to SCWF will not happen automatically. Instead, EPFO will inform you through the contact details you linked to EPF accounts. If you still not respond and not withdraw, then they move to SCWF.

Hence, considering all these rules, it is always best to transfer your old EPF accounts to the existing active EPF account immediately. Otherwise, withdraw the EPF balance immediately after 2 months from the non-contributory period or unemployment.

 

Disclaimer: - The emails are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

8

Should you spend or invest your bonus?

Hi fellow investors

The bonus season is here! 
Given that we cannot use our bonuses immediately to travel anywhere as such, it is a good time to put our thoughts to what we can do with our bonuses.

Generally, what you do with your bonus is a very personal choice on how you want to use your lump sum money and make the most of it. I have made the following suggestions to help you make an informed decision.


1. Reward yourself
Bonus is the money that you get for doing exceptional hard work in the year that has passed by and it is only fair to use a part of it to reward yourself. You can use it to buy yourself that fancy gadget that you always wanted, go on that vacation, put it aside for your dream car, etc.



2. Create your emergency fund 
Using your bonus amount to create your emergency fund of 4-6 times of your monthly expenses if you already don't have one. Given, the uncertainty of COVID 19 has not yet found a resort/calm it is best to have an emergency fund in place.



3. Pay your outstanding debt
Many people use their bonuses to prepay their loans and reduce the burden of a heavy loan. While how much loan you are comfortable with is a very personal choice, you can consider these 2 parameters to check if you should prepay or not. 

  • If your loan EMI is 50% or more of your take-home income, you should use your bonus amount to prepay and reduce the same to a comfortable 30% - 40% of your take-home income.
  • If your loan EMI is 20% - 30% of your take-home income, you can continue the same and pay it from your monthly income and enjoy tax benefits. You can avoid using your bonus to prepay your loan.

Basically, if you are having sleepless nights because of outstanding loan amounts, then use the bonus to prepay and have a good night's sleep.


4. Cover up your tax-saving investments
My first advice is always to invest regularly even for tax deductions to avoid any last-minute cash crunch in February and March. However, if you have not done the same, then use your bonus to do so and plan your investments to claim the tax deductions.



5. Keep it aside for your dream goals
Take that photography/culinary course, put it aside for your trip to Norway, buy that bike, save up for your business idea you have - keep this money aside for any goal of yours that is important to you and can be used for your own dreams. Use the bonus money for something that would add value and make you happy.

Bonus is a good lump sum payment and it is good to use it for something that will have a lasting impact on you.

Have fun splurging and investing (at least some of it).

See you next Thursday!

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



Know your Mutual Funds (2)

List of banks for your PPF investments

What is PPF?

Public provident fund is a popular investment scheme among investors courtesy of its multiple investor-friendly features and associated benefits. It is a long-term investment scheme popular among individuals who want to earn high but stable returns. Proper safekeeping of the principal amount is the prime target of individuals opening a PPF account.

Why open a PPF account?

public provident fund scheme is ideal for individuals with a low-risk appetite and is okay to invest their money in the long term. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India.

You can read more about PPF and things to note in PPF in our article.

Eligibility Criteria

Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a Public provident fund account in their name, provided it is operated by their parent.

Non-residential Indians are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure. These accounts cannot be extended for 5 years – a benefit available to Indian residents.

Interest in a PPF Account

The interest payable on the public provident fund scheme is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country.

Interest rates currently payable on such accounts stand at 7.9% and are subject to quarterly updates at the discretion of the government.

How to Open a PPF Account

Both offline and online procedures are available for an individual provided he/she meets the requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office.

The following documents have to be produced at the time of activation of a public provident fund account –

  1. KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc.
  2. PAN card.
  • Residential address proof.
  1. Form for nominee declaration.
  2. Passport-sized photograph.

Tax Benefits

Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of an investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh.

The total interest accrued on PPF investment is also exempt from any tax calculations.

Therefore, the entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. This policy makes the public provident fund scheme attractive to many investors in India.

List of Banks Offering PPF Accounts

  • Allahabad Bank
  • Corporation Bank
  • Bank of Baroda
  • HDFC Bank
  • ICICI Bank
  • Axis Bank
  • Kotak Mahindra Bank
  • State Bank of India and its subsidiaries which include the following –
    • State Bank of Travancore
    • State Bank of Bikaner and Jaipur
    • State Bank of Hyderabad
    • State Bank of Patiala
    • State Bank of Mysore
  • Canara Bank
  • Bank of India
  • Union Bank of India
  • Oriental Bank of Commerce
  • Central Bank of India
  • Bank of Maharashtra
  • Dena Bank
  • Syndicate Bank
  • United Bank of India
  • Indian Overseas Bank
  • Vijaya Bank
  • IDBI Bank
  • Andhra Bank
  • Punjab National Bank
  • UCO Bank
  • Punjab and Sind Bank

These are some of the common PPF Account opening banks. There are other banks too and if you hold a savings account with another bank that is not on the list, you can find out whether the bank is a PPF Account opening bank or not.

 



7

A Fixed Interest Of 8.5% With Low Interest- Invest Now?

Hi fellow investors

Have you recently checked returns of debt investment options like Fixed deposits/Liquid Funds? I am sure you would have been very disappointed by the return numbers there.  The approx interest from some of the popular debt investments today are::

1. Overnight/Liquid Debt Funds (Up to 90 days): 3.5% - 4.0%
2. Short term Debt Funds (1-3 yrs): 5.5% - 6.5% 
3. Fixed Deposits (1-5 years): 5.5% - 6.5%
4. Bharat Bond ETF (5-year bond) - 5.46%
5. Public Provident Fund (PPF) (15 years) - 7.1%

Clearly, the returns have reduced by 3%-5% across different debts in the past few months and debt as an investment category doesn't look very attractive. With the latest inflation number hovering at 6%, our money invested in the above debt options barely covers the impact of inflation on our expenses.

What if I told you that there was an option to earn 8.5% per annum?

For salaried fellow investors, it is something you deal with every payslip; Employee Provident Fund (EPF), giving an interest rate of 8.5% (for FY 2020-21) which is not only risk free, but also tax free. 

How can you make the most of it? 

If you are a salaried individual and your company has a provident fund and you have not opted for EPF,  you could opt for it as in the current market scenario no other debt investment is giving returns as high as 8.5% p.a.


1. Maximize your EPF Limit 

 If you are just contributing only INR 1,800 (the minimum required under EPF rules) towards your EPF account, you could consider increasing it making it to 12% of your basic salary. That way you can make the full use of the EPF limit available to you.


2. Invest as VPF (Voluntary Provident Fund) 

Where you are already investing 12% of your Basic Salary towards EPF and want to invest more to earn 8.5% you have an option to increase your contribution in EPF by opting for VPF (Voluntary Provident Fund). You can invest an amount up to your entire 'Basic' salary with the EPFO and earn the same interest rate of 8.5%. Please note your employer is not obliged to match this higher contribution and hence, it is called a 'voluntary' provident fund.

Features of VPF that you must know of 

  • It will earn you the same interest as your EPF i.e. 8.5% per annum (currently)
  • It will have a lock-in period of 5 to 10 years but you can withdraw for some specific reasons. Check out when can you withdraw from your EPF here.
  • Your employer will not match the contribution of your VPF unlike EPF
  • our contribution to VPF is eligible for tax deduction under section 80C.
  • The interest earned from VPF would also be tax-free (provided it is not withdrawn within the first 5 years).

So, if you have funds that you want to invest in risk-free investments and can park it for a while, (EPF + VPF) is a good debt investment option and can be mapped to your retirement goal. 

How much should you invest in VPF?

We are not advising you to invest your entire salary as VPF and have no money to pay your bills or cover your short term goals. We also don't want you to miss out on your equity investments that result in wealth creation over the long run. You can compute how much to invest as your VPF as under:

For example, if your in-hand salary is INR 1,50,000 per month (A basic component of INR 50,000):  

  • 12% of your basic salary i.e. INR 6,000 would be invested as your EPF.
  • A matching amount of INR 6,000 will be contributed by your Employer.
  • If your monthly expenses are INR 100,000, you have a monthly savings of INR 62,000 (INR 50,000 + INR 12,000).

Now if you are looking to invest in VPF, the lower of the 2 parameters will help you compute the same.

Limit I: 
Not more than 40% of your total portfolio holding should be in illiquid investments (Know about the step-by-step process to withdraw your EPF). You can ensure this by not contributing more than 40% of your monthly savings towards Illiquid investments.
Accordingly, 40% of your savings (INR 62,000) will be INR 24,800 out of which INR 12,000 is already invested as EPF. So the balance you could additionally invest is INR 12,800 as per this.

Limit II: 
It should be considered as a part of the contribution you make towards your retirement goal. Now if your retirement goal requires you to invest 18,000 per month for the next 25 years to achieve your corpus to retire peacefully (based on Wealth Cafe Investing tool) and you are already investing INR 12,000 from the EPF, then only the balance of INR 6,000 should be invested towards VPF.

Limit III:
You are already investing INR 12,000 towards EPF. A maximum of another INR 38,000 can be invested by you in VPF.

Based on the above limits, INR 12,800 or INR 6,000 or INR 38,000 whichever is lower can be additionally invested in your VPF.

For simplicity sake, the above computation assumes that you are not investing your money in any other illiquid investments and are not saving for your retirement in any fund apart from EPF and VPF. If you are doing so, the amount invested in that could be reduced from the amount arrived at in Limit I & II above.

Another advantage of using the VPF route is that it is invested directly from your salary and then the balance salary comes to you, ensuring the consistency of your investments. 

Do review your numbers and you will have to contact your HR/accounts team to start contributing to VPF. Let us know if you have any questions about this in the comments section of our blog.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



fy

Income-tax Rates FY 2019-20 (AY 2020-21)


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Before knowing the tax rates, it is very important to understand the terms Financial year (FY) and Assessment Year (AY).

The below-mentioned tax rates/ slab is on the income earned for the period 1 April 2019 to 31 March 2020. FY stands for the ‘financial year’ which is from 1 April 2019 to 31 March 2020. AY stands for Assessment year which 2020-21.

For individuals, the due date to file the income tax return for the income earned from 1 April 2019 to 31 March 2020 is 31 July 2020. However, this year due to COVID 19 economic relaxations, the due date is pushed to 30 November 2020

Income tax Rates 

Tax Rates for Individuals (below 60)

Income Tax Slab

(in Rupees)

Tax Rate for Individual Below the Age Of 60 Years
0 to 2,50,000*Nil
2,50,001 to 5,00,0005% of total income exceeding 2,50,000
5,00,001 to 10,00,000Tax Amount of 12,500 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000Tax Amount of 1,12,500 for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Tax Rates for Senior Tax Payers between the age of 60 years to 80 years old

Income Tax SlabSenior Citizens (between 60 years – 80 years)
Up to 3,00,000Nil
 3,00,001 to 5,00,0005% of income exceeding 3,00,000
 5,00,001 to 10,00,000Tax Amount of 10,000 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000Tax Amount of 1,10,000for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Tax Rates for Super Senior Taxpayers above the age of 80 years

Income Tax SlabVery Senior Citizens of and above 80 years of age
Up to 5,00,000Nil
 5,00,001 to 10,00,00020% of income exceeding 5,00,000
Above 10,00,00030% of income exceeding 10,00,000

Important Notes:

  • The income tax rates are applied to the annual income calculated. Thereafter Surcharge and Cess are added to the tax payable.
    • A surcharge is also applicable slab wise. The surcharge is calculated on the Tax amount. If the income is:
  1. Above Rs.50,00,000 and up to Rs.1 crore – then 10% surcharge is applicable
  2. Above Rs.1 crore and up to Rs.2 crore – then 15% surcharge is applicable.

In the Union Budget 2019-20, a new surcharge on income tax for super-rich individuals has been levied. So, individuals earning:

  1. Between Rs.2 crore and up to Rs.5 crore –then 25% surcharge is applicable;
  2. For Above Rs.5 crore – then a 37% surcharge is applicable.
  • An additional Cess of 4% for Health & Education is applicable to the income tax plus surcharge.
  • Section 87A allows tax rebates to Individuals whose total annual income falls below Rs.5,00,000. The rebate is limited to Rs.12,500 or the actual tax amount whichever is lower.

Income Tax Slabs for HUF

The Income Tax Slab for Hindu Undivided Family (HUF) is the same as the Tax slabs for Individuals under the age of 60 years in the year 2019 – 2020.

Income Tax Slabs for Partnership Firms

There is a flat tax rate for Partnership Firms and LLPs (Limited Liability Partnerships) and they are to pay Income Tax at the rate of 30%.

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge

Income Tax Slabs for Local Authorities

Local Authorities to are to be taxed at a flat tax rate of 30%.

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus a surcharge.

Income Tax Slabs for Domestic Companies

Domestic Companies have received a boost. With the turnover raised from 250 crores to 400 crores for a tax rate of 25%. The turnover slab wise tax calculation is:

Turnover ParticularsTax Rates
Gross turnover up to 400 Cr. in the previous year25% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)
Gross turnover exceeding 400 Cr. in the previous year30% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)

Added to the tax amount is:

Surcharge on tax:

  1. 7% in cases where the annual income is between Rs.1 Crore to Rs.10 Crore
  2.  12% in cases where the annual income is more than Rs.10 Crore

Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge

Income Tax Slabs for Foreign Companies

Foreign Companies are taxed at a rate of 40%.

Added to the tax amount is:

  1. Surcharge on tax: 2% in cases where the annual income is between Rs.1 Crore to Rs.10 Crore
  2. 5% in cases where the annual income is more than Rs.10 Crore
  3. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge

Income Tax Slabs for Co-operative Societies

Income Tax SlabIncome Tax Slab Rate
Up to Rs.10,00010% of Income
Rs.10,000 to Rs.20,00020% of Income exceeding Rs.10,000
Over Rs.20,00030% of Income exceeding Rs.20,000

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge
  3. So, to calculate your tax liability for the year, you should keep a track of your annual income to know what Income slab you will be falling under for the year 2019 – 2020.

Income tax rates for a non-resident – Individuals

Income SlabsIncome-tax rates
Up to 2,50,000Nil
From 2,50,000 to 5,00,0005%
From 5,00,000 to 10,00,00020%
Above 10,00,00030%
Ø  Surcharge: 10% of tax where total income increases Rs. 50 lakhs

15% of tax where total income increases Rs. 1 crore

Ø  Health & Education cess: 3% of tax plus surcharge

Capital Gains Taxation on Mutual Funds/Direct Equity

For Equity Oriented Schemes/Direct Equity

  • Long Term Capital Gains (units held for more than 12 months)
  • Short Term Capital Gains (units held for 12 months or less)

For non-equity oriented schemes

  • Long Term Capital Gains (units held for more than 36 months)
  • Short Term Capital Gains (units held for 36 months or less)
 Individual/ HUFDomestic CompanyNRI

Equity Oriented Schemes/Direct Equity

Long term capital gains10%*10%*10%*
Short term capital gains15%15%15%

Other Than Equity Oriented Schemes

Long term capital gains20% (after indexation)20% (after indexation)Listed – 20% (after indexation)

Unlisted – 10% (without indexation)

Short term capital gains30%^30%^^/25%^^^30%^

 

 

 

Tax Deducted at Source (Applicable to NRI Investors)

 
 Short term capital gains$Long term capital gains$
Equity oriented schemes15%10%*
Other than equity-oriented schemes30%10% (for unlisted without indexation) and 20% (for listed)

* Income-tax at the rate of 10% (without indexation benefit) on long-term capital gains exceeding Rs. 1 lakh provided the transfer of such units is subject to STT.

$ Finance (No.2) Act, 2019 provides for a surcharge at:

  • 37% on base tax where income exceeds Rs. 5 crore;
  • 25% where income exceeds Rs. 2 crore but does not exceed Rs. 5 crore;
  • 15% where income exceeds Rs. 1 crore but does not exceed Rs. 2 crore;
  • 10% where income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore.

Further, “Health and Education Cess” to be levied at the rate of 4% on the aggregate of base tax and surcharge.

@ Surcharge at 7% on base tax is applicable where the income of domestic corporate unit holders exceeds Rs 1 crore but does not exceed 10 crores and at 12% where income exceeds 10 crores. Further, “Health and Education Cess” to be levied at the rate of 4% on the aggregate of base tax and surcharge.

# Short term/ long term capital gain tax (along with applicable Surcharge and “Health and Education Cess”) will be deducted at the time of redemption of units in case of NRI investors.

^ Assuming the investor falls into the highest tax bracket.

^^ This rate applies to companies other than companies engaged in manufacturing business who are taxed at a lower rate subject to fulfillment of certain conditions.

^^^ If total turnover or gross receipts during the financial year 2017-18 does not exceed Rs. 400 crores.

Further, the domestic companies are subject to minimum alternate tax not specified in the above tax rates. Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.

Income-tax implications on dividend received by Mutual Fund unitholders

 Individual/ HUF Domestic CompanyNRI

Dividend

Equity oriented schemesNilNilNil
Debt oriented schemesNilNilNil

Rate of tax on distributed income (payable by the MF scheme)**

Equity oriented schemes*10% + 12% Surcharge + 4% Cess10% + 12% Surcharge + 4% Cess10% + 12% Surcharge + 4% Cess
= 11.648%= 11.648%= 11.648%
Money market or Liquid schemes /debt schemes (other than infrastructure debt fund)25% + 12% Surcharge + 4% Cess30% + 12% Surcharge + 4% Cess25% + 12% Surcharge + 4% Cess
= 29.12%= 34.944%= 29.12%
Infrastructure Debt Fund25% + 12% Surcharge + 4% Cess30% + 12% Surcharge + 4% Cess5% + 12% Surcharge + 4% Cess
= 29.12%= 34. 944%= 5.824%

* Securities transaction tax (STT) shall be payable on equity-oriented mutual funds schemes at the time of redemption/switch to the other schemes/sale of units.

** For the purpose of determining the tax payable by the scheme, the amount of distributed income has to be increased to such amount as would, after reduction of tax on such increased amount, be equal to the income distributed by the Mutual Fund. In other words, the amount payable to unitholders is to be grossed up for determining the tax payable, and accordingly, the effective tax rate would be higher. The above-mentioned rate is without considering the grossing up.

Surcharge mentioned in the above table is payable on base tax. Further, “Health and Education Cess” is to be levied at 4% on the aggregate of base tax and surcharge.

Disclaimer – The tax rates mentioned here are from the Finance Act 2019 and can be subject to changes. It is advisable to consult your tax consultant or financial advisor before finalizing your tax returns.

Income tax Feature Image (1)

Income-tax Rates FY 2020-21 (AY 2021-22)


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Before knowing the tax rates, it is very important to understand the terms Financial year (FY) and Assessment Year (AY).

The below-mentioned tax rates/ slab is on the income earned for the period 1 April 2020 to 31 March 2021. FY stands for the ‘financial year’ which is from 1 April 2020 to 31 March 2021. AY stands for Assessment year which 2021-22.

For individuals, the due date to file the income tax return for the income earned from 1 April 2020 to 31 March 2021 is 31 July 2021. However, this year due to COVID 19 economic relaxations, the due date is pushed to 30 November 2021

Income tax Rates 

  1. Income Tax Rate & Slab for Individuals & HUF:
    1. Individual (Resident or Resident but not Ordinarily Resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous year & for HUF:

 

Taxable incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 5,00,0005%5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%30%

 

  1. Resident or Resident but not Ordinarily Resident senior citizen, i.e., every individual, being a resident or Resident but not Ordinarily Resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year:
Taxable incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 3,00,000Nil5%
Rs. 3,00,001 to Rs. 5,00,0005%5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%30%

 

  1. Resident or Resident but not Ordinarily Resident super senior citizen, i.e., every individual, being a resident or Resident but not Ordinarily Resident in India, who is of the age of 80 years or more at any time during the previous year:
Taxable incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 5,00,000Nil5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%30%
  1. Surcharge:
    a) 10% of Income tax where total income exceeds Rs.50 lakh
    b) 15% of Income tax where total income exceeds Rs.1 crore
    c) 25% of Income tax where total income exceeds Rs.2 crore
    d) 37% of Income tax where total income exceeds Rs.5 crore
  2. Note:Enhanced Surcharge rate (25% or 37%) is not applicable in case of specified incomes I.e. short-term capital gain u/s 111A, long-term capital gain u/s 112A & short-term or long-term capital gain u/s 115AD(1)(b).
  3. Education cess:4% of income tax plus surcharge
  4. Note: A resident or Resident but not Ordinarily Resident individual is entitled to rebate under section 87A if his total income does not exceed Rs. 5, 00,000. The amount of rebate shall be 100% of income-tax or Rs. 12,500, whichever is less. rebate under section 87A is available in both schemes I.e. existing scheme as well as new scheme.

 

  1. Income Tax Rates for AOP/BOI/Any other Artificial Juridical Person:
Taxable incomeTax Rate
Up to Rs. 2,50,000Nil
Rs. 2,50,001 to Rs. 5,00,0005%
Rs. 5,00,001 to Rs. 10,00,00020%
Above Rs. 10,00,00030%

Surcharge:
a) 10% of Income tax where total income exceeds Rs.50 lakh
b) 15% of Income tax where total income exceeds Rs.1 crore
c) 25% of Income tax where total income exceeds Rs.2 crore
d) 37% of Income tax where total income exceeds Rs.5 crore

Note: Enhanced Surcharge rate (25% or 37%) is not applicable in case of specified incomes I.e. short-term capital gain u/s 111A, long-term capital gain u/s 112A & short-term or long-term capital gain u/s 115AD(1)(b).

Education cess: 4% of tax plus surcharge

 

  1. Tax Rate for Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore

Education cess: 4% of Income tax plus surcharge

 

  1. Income Tax Slab Rate for Local Authority:

A local authority is Income taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore

Education cess: 4% of tax plus surcharge

 

  1. Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year.

ParticularsTax Rate(%)
If turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year 2018-1925%
If the company opted section 115BA (Note 1)25%
If the company opted for section 115BAA (Note 2)22%
If the company opted for section 115BAB (Note 3)15%
Any other domestic company30%

 

Note 1: Section 115BA – A domestic company which is registered on or after March 1, 2016 and engaged in the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it and also It is not claiming any deduction u/s 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB), 35AC, 35AD, 35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA) or additional depreciation, can opt section 115BA on or before the due date of return by filing Form 10-IB online. Company cannot claim any brought forwarded losses (if such loss is related to the deductions specified in above point).

Note 2: Section 115BAA – Total income of a company is taxable at the rate of 22% (from A.Y 2020-21), if the following conditions are satisfied:
– Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA).
– Company is not claiming any brought forwarded losses (if such loss is related to the deductions specified in above point).
– Provisions of MAT is not applicable on such company after exercising of option. company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Note 3: Section 115BAB – Total income of a company is taxable at the rate of 15% (from A.Y 2020-21), if the following conditions are satisfied:

– Company (not covered in section 115BA and 115BAA) is registered on or after October 1, 2019 and commenced manufacturing on or before 31st March, 2023.
– Company is not formed by splitting up or reconstruction of a business already in existence.
– Company does not use any machinery or plant previously used for any purpose.
– Company does not use any building previously used as a hotel or a convention center, as the case may be.
– Company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it. Business of manufacture or production shall not includes business of –

  • Development of computer software;
  • Mining ;
  • Conversion of marble blocks or similar items into slabs;
  • Bottling of gas into cylinder;
  • Printing of books or production of cinematographic film; or
  • Any other notified by Central Govt.

– Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA and 80M).

– Company is not claiming any brought forwarded losses (if such loss is related to the deductions specified in above point).

– Provisions of MAT is not applicable on such company after exercising of option. company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Surcharge:
a) 7% of Income tax where total income exceeds Rs.1 crore
b) 12% of Income tax where total income exceeds Rs.10 crore
c) 10% of income tax where domestic company opted for section 115BAA and 115BAB

Education cess: 4% of Income tax plus surcharge.

 

  1. Tax Rates for Foreign Company:

A foreign company is taxable at 40%

Surcharge:
a) 2% of Income tax where total income exceeds Rs. 1 crore
b) 5% of Income tax where total income exceeds Rs. 10 crore

Education cess: 4% of Income tax plus surcharge.

Taxable incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 10,00010%
Rs. 10,001 to Rs. 20,00020%22%
Above Rs. 20,00030%
  1. Income Tax Slab for Co-operative Society:

Surcharge:

  1. a) 12% of Income tax where total income exceeds Rs. 1 crore
  2. b) In case of Concessional scheme, surcharge rate is 10%

Education cess: 4% of Income tax plus surcharge.

Disclaimer: – The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

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EPF Withdrawal – Taxable or Exempt?


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A contribution towards an EPF account provides a benefit to individuals by way of a deduction under Section 80 C (see here). It would also be good to know what would be the income tax implications of EPF withdrawal. Interestingly, EPF withdrawal is taxable under certain circumstances and exempt under the certain circumstances.

The following table will help you easily understand the taxability on withdrawal of EPF:

Sl NoScenarioTaxability
1Amount withdrawn is < Rs 50,000 before completion of 5 continuous years of serviceNo TDS. However, If the individual falls under the taxable bracket, he has to offer such EPF withdrawal in his return of income
2Amount withdrawn is > Rs 50,000 before completion of 5 years of continuous serviceTDS @ 10% if PAN is furnished; No TDS in case Form 15G/15H is furnished
3Withdrawal of EPF after 5 years of continuous serviceNo TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax
4Transfer of PF from one account to another upon a change of jobNo TDS. Further, the individual need not offer the same in return of income as it is not taxable.
5Before completion of 5 continuous years of service\ if employment is terminated

due to the employee’s ill health. The business of the employer is discontinued or the reasons for withdrawal are beyond the employee’s control

No TDS. Further, the individual need not offer the same in the return of income as such withdrawal is exempt from tax
income-tax-491626__340

How to save tax


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Mid-January is a stressful time for most salaried individuals. Most of them are calling their CAs, talking to their friends or opening fixed deposits to make investments to avoid/reduce their taxes. It is the time when most offices require the employees to submit their investment proofs for availing the tax benefit.

Most of us know about the deduction of INR. 150,000 available to individuals. This deduction means that an amount of INR 150,000 is reduced from your total taxable income and then, the balance is taxable under the Act. Generally, people know that this INR 150,000 deduction is available when you invest in the Provident Fund (PF), an insurance policy or a new fixed deposit (FD) of 5 years every year.

These are not the only options available for tax savings. In our Article, taxation of salary, we discussed ways and reasons to make the most of your salary. Here, we are going to discuss, means made available to you under the Income-tax Act, 1961 to reduce your tax payable. To make use of any of these options, you will have to actually spend the money, invest it i.e. there will be an outflow of funds. You also need to have a backup and the relevant documents to claim the tax deductions.

The deductions for the following expenses/investments are allowed.

  • Popular INR 150,000 deduction: Claiming a deduction of INR 150,000 under section 80C of the Act can reduce your tax outgo by around Rs. 45,000 (for someone in a 30% tax bracket, calculation without considering cess). Also, the government has included many options under this to inculcate and increase the practice of investing and saving.
ProductTax Benefit
1. Insurance PolicyPayments made towards the premium of self, spouse, and children. The debt should be made from the individuals’ bank account who is claiming the tax deduction.
2. Provident Fund (PF)Payment made towards provident fund or superannuation fund
3. Tuition FeesTuition fees paid to educate 2 children
4. Construction or purchase of residential houseThe principal amount of the loan towards purchasing or constructing a new house.
5. Fixed DepositInvesting in an FD for a period of 5 years or more and stay invested for 5 years.
6. Mutual FundsInvesting in a specific tax-saving MF categorized as ELSS for a lock-in period of 3 years
7. OthersNational Savings Scheme, sukanya Samriddhi Scheme, Employee Provident Fund, Voluntary Provident Fund, Senior Citizens saving scheme, Unit-linked insurance plan, Infrastructure Bonds, NABARD Rural Bonds
  • Invest for retirement and taxes – Under section 80CCD (1B), an additional deduction of up to INR 50,000 for the amount deposited by a taxpayer to the National Pension Scheme (NPS) notified by the central government can be claimed. This is subject to the contribution being less than 10% of the basic salary of the employee. Contributions to Atal Pension Yojana are also eligible.
  • Employer’s contribution to NPS – Section 80CCD (2), an additional deduction is allowed for the employer’s contribution to an employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.
  • Interest earned on the savings bank account:   A deduction of maximum INR 10,000 can be claimed against interest income from a savings bank account as per section 80 TTA of the Act. Interest from a savings bank account should be first included in other income and deduction can be claimed of the total interest earned or INR 10,000, whichever is less.
  • Health Insurance and preventive health check-up: A deduction of the amount paid towards health insurance premium of your family (including your spouse and children) and parents, which are different from the benefits, based on the costs related to health check-ups. The deduction limits are as follows:
Persons coveredExemption LimitHealth check-up exemptionTotal
Self and familyINR 25,000INR 5,000INR 25,000
self and family + parents(INR 25,000 + INR 25,000) = INR 50,000INR 5,000INR 55,000
self and family + senior citizen parents(INR 25,000 + INR 30,000) = INR 55,000INR 5,000INR 60,000
self (senior citizen) and family + senior citizen parents(INR 30,000 + INR 30,000) = INR 60,000INR 5,000INR 65,000
  • Save tax on loan taken for higher education- A deduction under section 80 EE is allowed to an individual for interest on a loan is taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
  • Save while you pay for a disabled dependent: Under section 80 DD medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent ‘

Disability is 40% or more but less than 80% – Rs.75,000

Disability is 80% or more – Rs. 125,000

  • Medical expenses of a disabled Individual – Self-suffering from disability:
    An individual suffering from a physical disability (including blindness) or mental retardation. – Rs. 75,000

An individual suffering from severe disability – Rs. 125,000

  • Save tax while you donate: The various donations specified under section 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in section 80G. From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify as deduction u/s 80G.
  • Contributions given by any person to Political Parties: Deduction under this section is allowed to a taxpayer except for a company, local authority and an artificial juridical person wholly or partly funded by the government, for any amount contributed to any political party or an electoral trust. The deduction is allowed for contribution done by any way other than cash.

These deductions are the best ways to reduce your taxes and also save and invest your money. We have included all the sections for deductions above. However, if you have any query, please leave it in the comments below and we shall revert to you at the earliest.

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Is the income up to Rs. 5,00,000 exempt as per the interim budget 2019?


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The income tax rebate has been revised by Budget 2019 and there is no tax on income up to Rs. 5,00,000.  However, this benefit is available to only those whose income is equal to or less than Rs. 5,00,000.

This benefit is provided through the rebate available under section 87  A and not by amending the tax slab rates. It means if your total tax payable is lower than Rs.12,500, the amount will eligible for a rebate under Sec.87A.

Refer our Article Income-tax slab rates for Individuals for FY 2019-20 (AY 2020-21)

A summary of the Revised Income tax slab rates for FY 2019-20 (AY 2020-21)

Income slabsIndividual aged (Aged below 60 years)Senior citizens (Aged 60 years and above but below 80 years) Super senior citizens (Aged 80 years and above)
Up to 2,50,000NilNilNil
From 2,50,000 to 3,00,0005%NilNil
From 3,00,000 to 5,00,0005%5%Nil
From 5,00,000 to 10,00,00020%20%20%
Above 10,00,00030%30%30%

Please note that there is no change in the income-tax slab rates, if your income is higher than 5,00,000, then tax will be levied on income from between Rs. 2,50,000 to Rs. 5,00,000.However, if your income is Rs. 5,00,000 and less, only then your tax liability is zero.

Let’s explain you with an example

Tax Rates and SlabsIncome of 5,00,000Income of 7,00,000
Up to Rs. 2,50,000NilNil
2,50,000 to 5,00,000 (5%)12,50012,500
Above, 5,00,000(20%)Nil40,000
Rebate u/s 87A(12,500)Nil
Total Tax PayableNil52,500

You may notice that up to Rs.5,00,000, even though there is tax liability, due to revised limits of Sec.87A, your tax liability becomes zero.

However, if your total income is more than Rs.5,00,000 then you are not eligible to claim the deduction under Sec.87A. Hence, there will not be any benefit for those who are under higher tax bracket.

Points to note

  • Individuals with income up to Rs. 5,00,000 will have no taxable income, however, tds will be deducted and you will have to claim a refund.
  • To claim a refund and use the benefit it is compulsory to file the income-tax return.
  • Do remember that the rebate should be applied to the total tax before adding the education cess (4%).

For other Budget Updates, read our Article Budget 2019 Highlights – 6 things you must know.

 



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