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.


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.


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


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.


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

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.


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.



How to calculate Pension under EPS

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We have discussed everything about EPS in our series of Articles on EPS.

You can read them




Monthly pension calculation (Employed after 16/11/1995)

The pension amount for those employed after 16th November 1995 is calculated as follows:

Pension amount = (Pensionable salary * Service period)/70

In order to calculate the monthly pension, in this case, the following points need to be kept in mind:

  • Pensionable salary is the average income of the preceding 60 months. Most employers have a restriction on pension contribution to either Rs.1,250 or 8.33%, whichever is minimum. In these scenarios, the maximum pensionable salary would be Rs.15,000.
  • Only the basic pay and dearness allowance are considered a salary.
  • If an employee has completed over 20 years of service, then two years should be added as a bonus in the equation. According to the rules, the bonus can be also applied for the service before 16/11/1995.
  • The new rules make it mandatory for the pension to be more than Rs.1,000 per month.
  • An employee is eligible for a pension after completion of 10 years of service.

2.      Monthly Pension Calculation for a member who joined EPF before 15.11.1995 have 3 components in the Pension calculation

a) Procedure for calculating the Past Service Pension

  • The pension is calculated twice based on the period of employment.
  • Once before 16/11/1995 and once after 16/11/1995.
  • For calculation of pension before 16/11/1995, the following table can be used. In this table, the pension is fixed based on the pay and period of service.
Years of past serviceUp to Rs.2,500 (Salary)Above Rs.2,500 (Salary)
Below 11 years8085
Between 11 to 15 years95105
Between 15 to 20 years120135
More than 20 years150170
  • Find out the period that had elapsed between 16.11.1995 and the date of exit and based on this period locates the corresponding Table ‘B’ Factor. Date of Exit is Date of attaining 58 years for superannuation/early pension, Date of Death for widow pension and Date of Disablement for Disablement Pension.
  • Multiply the Past Service Benefit and the Table B factor, which gives the Past.

b) Procedure for calculation of Pensionable Service Pension

  • Find out the Category of the member as to whether he belongs to X, Y or Z Category.
  • X – Date of commencement of pension is between 16.11.1995 and 15.11.2000 Y – Date of commencement of pension is between 16.11.2000 and 15.11.2005 Z – Date of commencement of pension on or after 16.11.2005.
  • Find out the Pensionable Service and Pensionable Salary of the member and substitute the same in the formula given as below.

(Average Salary X Service)/70

  • If the formula pension calculated is less than 335/438/635 respectively, for X, Y, Z categories, then only that minimum pension is to be given.

c) Procedure for the calculation of Total Pension-Add the Past Service Pension and the Formula Pension.

  • Add the Past Service Pension and the Formula Pension.
  • If the total pension is less than 500/600/800 respectively, for X, Y, Z categories, then that minimum pension shall be the total pension.
  • But this total pension is for an eligible service of 24 years or more, and if the eligible service is less than 24 years, then this total pension has to be proportionately reduced subject to a minimum of 265/325/450 depending on X, Y, Z categories (only when the minimum pension is given).
  • If the total pension itself is more than the minimum, then the proportionate reduction need not be made even if the eligible service is less than 24 years.

Wealth Cafe Tip – We tend to accept EPF the way it is displayed in our passbooks. There is always a scope of error and one should verify every return and investment they are making.


Reduce taxes without investing any money

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‘People in my office were suggesting me as to how I should make a fixed deposit from now itself to save my taxes at the end of the financial year.’ ‘Do I have an LIC policy? Do you think that would be enough to avoid taxes on my payslip?’ ‘I do not have money at the end of the year to invest to reduce taxes.’ I am sure most of us have either said such statements or heard people  make them. Irrespective of the above, most of us do wonder why our salary is being taxed and we want to know how to avoid paying taxes or pay the least possible taxes ever. I have mentioned ways to reduce your taxes without making any investments i.e. just by understanding your salary structure and its components. It is very important to know that the entire CTC amount of an individual is not taxed at the same rate but various components in the salary structure affect your taxability differently. This is the main reason why we are not paid an X amount as salary but the same is divided into the components. We have discussed the compensation structure in our Article – Understand your salary structure As discussed earlier, salary can be divided into 4 basic components and we shall discuss the taxability with respect to each component now
                                             Running away from your tax queries is not the solution to reduce your taxes.
Reimbursements and allowance: You can reduce your taxes on the reimbursements and allowances by submitting proper bills and other required documents/forms withing the due dates provided by your employer.
  • Leave Travel Allowance (LTA) – Did you know that the annual leaves and holiday that you were taking would actually help you to reduce your taxes? LTA lets you do just that. LTA remunerates employees for their travel within the country. The amount of LTA would be mentioned in your salary structure. Where you submit appropriate and eligible bills of your travel to your employer, the amount shall be paid to you and will be considered tax-free. There are a few conditions/rules which are to be followed while claiming for your tax-free. We have mentioned the same in our article How to save taxes through LTA.
  • House Rent Allowance (HRA) – Your Company pays for your rent and when you submit appropriate rent receipts, no taxes are charged on the same. This benefit is available only to those employees who are staying on rent. Given that in metro cities, many of us are living on rent, it is a great benefit to save taxes. As always, there are certain rules based on which this becomes tax-free, we have mentioned the rules in our Article How to save taxes through HRA.
  • Standard deduction towards medical and conveyance: From April 2018, a standard deduction of INR 40,000 is available towards medical and conveyance expenses of the employees. You are not required to submit any bills to claim this benefit. INR 40,000 would be directly deducted from your gross salary to compute the taxable salary numbers. Ensure that the same is deducted when you receive your Form 16.
  • Food, telephone, internet and other reimbursements – Some employees have other reimbursement items such as food, telephone, internet, uniform, newspaper etc. which are reimbursable and no taxes will be deducted on these if you submit bills as required by your employer.
                                                                     Taxability of various salary components
Contributions – Payments made by the employer on behalf of their employees towards EPF, NPS, insurance or gratuity for the retirement benefits or otherwise
  • Employee’s provident fund (EPF) – Contributions made by the employer and employee (which are deducted from the CTC) is tax-free. The same is not included as a part of your taxable salary. Please refer to our Article – Taxability of EPF to understand the same in detail.
  • National Pension Scheme (NPS) – Deductions made from your salary each month towards NPS and your employers’ contribution is tax-free. In fact, NPS provides additional tax benefits to the employees. We have discussed the same in detail in our Article – Taxability of NPS.
  • Gratuity – Gratuity is only received when on resignation (after completion of 5 years of service), death or retirement. A part of the gratuity amount received is exempt based on the formula specified under the Income-tax Act. We have discussed the same in detail in our Article – Taxability of Gratuity.
  • Insurance – Any premium paid by your employer towards your health insurance, life and others which is included in your CTC is tax-free and the same is not included in your total taxable salary.
Variable salary i.e. Bonus paid in any form is taxable. Bonus is added to your total taxable salary and taxed based on the slab rate you fall under after the receipt of the bonus. Fixed Salary Components: This includes the basic salary, special allowance, Dearness allowance etc. They are generally fully taxable.
  • Basic salary is generally is 40% – 50% of the CTC amount.
  • Dearness allowance is not paid by many private companies; it is generally paid by government companies.
  • Special allowances are the balancing number in your CTC. Whatever may be the amount, it is fully taxable.
Professional Tax – Professional tax is the tax levied by Governments of certain states on salaried employees. The states where professional tax is applicable are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of profession Tax that is deducted varies from state to state where they are applicable. You get a credit of the professional tax paid while computing your income-tax liability. From this article,  you would have understood the simple ways (if applied) that can reduce the taxes without making any additional insurance or investments. These ways are inbuilt in your salary components and not many people know how to make most of it. Understand your salary structure and work on reducing your taxes. It is the first step towards a healthy financial life. In our salary series of articles, we have discussed the taxability of each component.

Transfer from EPF to NPS

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Need/Benefit of switching EPF to NPS

EPF and NPS both are the retirement saving scheme and have a provision of pension. Then, what is the need for EPF transfer to NPS? I am listing the reason.

Shift to a government company

 When you work in a private company, you have to subscribe to the EPF. But if you switch to the government department, you have to contribute to the NPS. In this case, your EPF balance is not used for retirement saving. Often you have to withdraw it citing unemployment for 2 months. Also, EPF withdrawal may be subject to tax if you have not completed 5 years in the private job.

Want Better Return

EPF is designed to give a retirement corpus to organized sector workers. It tries to keep your investment safe along with a decent return. Whereas NPS gives you a chance to get a better return with some risk. It invests a greater proportion in the share market. That is why NPS may be a better option for those who want to build wealth by taking some risk.

More Transparency

Normally EPF gives more return than the bank deposit. However, you don’t know how did EPF earn. where it invests? Whereas in the NPS, every investment is transparent. You know the mutual fund plans where your money is invested. Every week you get to know the NAV of your mutual fund plan.

Active change of Portfolio

If you want to actively manage your retirement corpus then NPS is a better option. In the NPS you can change your asset allocation twice in a year. Thus you can affect the return of your NPS investment. It is not possible with the EPF.

Extra Tax Benefit

The government has given the extra tax benefit to the NPS (80CCD-1B). You can get an extra tax deduction of up to 50 thousand because of the NPS. This tax deduction of 50 thousand is over and above the 80C limit.

Issues of transferring EPF to NPS

EPF to NPS switch was not very easy. It is not like transfer of money from one account to another account. Following are the hurdles of this switch.

  1. EPF withdrawal before completing 5 years in service becomes taxable. The EFPO deducts tax before giving you the corpus.
  2. EPFO does not permit premature withdrawal. Neither it recognizes the withdrawal for NPS.

The given process Involves only acceptance of EPF corpus into an NPS account. The PFRDA has released these steps.

Open NPS Tier-I Account

To receive the EPF amount, you must have an NPS account. You can open NPS account through your employer. Those people who don’t have an employer or NPS facility with them can open an NPS account through the POP. There are many POPs available. An online NPS account opened through the e-NPS is also eligible for getting the EPF balance.

Submit Request To Employer

If you are a government or private sector employee, you have to approach the recognized provident fund or superannuation fund. It can be done through the employer.

EPFO or Trust Would Process Application

The provident fund or superannuation fund initiate the fund transfer process. After the due process, it would release the EPF corpus.

Cheque or DD Issuance

The cheque or demand draft would be issued in the name of either of the following.

In the case of government employee: Nodal Office Name (PAO or CDDO Name)<>Employee Name <> PRAN

In case of Subscriber is a private employee or self-employed:  POP collection account-NPS trust <>Subscriber Name<>PRAN

Get Letter of EPF Transfer

The EPFO or Trust would also issue a letter telling about the EPF to NPS transfer. You have to get this letter and submit to the present employer or POP. This letter is a proof that your lump sum NPS contribution belongs to the EPF account.

The Contribution into NPS account

Once you submit the EPF transfer letter along with the cheque, the NPS nodal office or POP updates your NPS account with the latest contribution.

Points To Note

The EPF transfer amount would not be eligible for the tax deduction as it is not the original investment. It is just a transfer so does not enjoy any extra tax benefit.

You must have an active NPS account. The EPF transfer amount would go into Tier-I account.

The EPF transfer amount should be routed through the employer or POP-PS. The NPS subscribers have to go to POP-SP for submitting EPF cheque/DD.

Unlike EPF, you would not get the whole corpus after the retirement, rather you would get only 40% amount. The 40% -60%  amount would be used to give you a regular pension. You can get 20% of the amount in 10 installments to the age of 70.

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