Month: February 2021

A glance at VPF

An extension of the Employees’ Provident Fund(EPF) is the Voluntary Provident Fund (VPF). Employees working in registered companies are required to contribute 12% of their basic salary under EPF. Unless the employee retires or is entitled to make a premature withdrawal under a certain provision the contributions towards EPF is locked-in. Voluntary Provident Fund (VPF) here plays the role of an extension which means that if an employee wants to contribute more above the stated limit he or she can do so by considering VPF but the contribution by your employer will be the same.

A glance at PPF

One of the most prominent tax-saving strategies under the provisions of Section 80C is the Public Provident Fund (PPF). All types of resident individuals whether unemployed, minors or employed in an unorganised sector can invest in PPF. By investing in PPF, taxpayers can seek tax exemptions of up to Rs 1,50,000 in a fiscal year. In a year, the minimum contribution cap is restricted at Rs 500 up to an upper limit of Rs 1.5 lakh. The returns provided by PPF are set and covered by sovereign guarantees.

Returns

For the quarter ending March 2021, the present rate provided on PPF is 7.1 per cent. For the current 2020-21 financial year, the interest rate for the EPF is yet to be announced. The interest rate on the EPF has been placed at 8.5% for the 2019-20 fiscal year. The odds of receiving a stronger interest rate are good with the above depending on the historical interest rates provided by both the PPF and the VPF.

Minimum and maximum contribution limit

You have to contribute a minimum of Rs 500 and up to an upper limit of Rs 1.5 lakh towards PPF. Your account will become ‘inactive’ if you fail to make the minimum contribution amount per year. Such restriction of minimum or maximum contribution does not exist for VPF. The overall contribution in EPF and VPF combined, though, is restricted to 100% of your basic salary plus dearness allowance.

Tenure

Under PPF, the investment period is fifteen years which can be further extended to a block of 5 years. On the other side, VPF is known to be among the best retirement funds, so all the EPF withdrawal guidelines always apply to VPF. After superannuation, you can withdraw the entire EPF corpus. One needs to retire from employment after hitting 55 years of age in order to receive the final EPF settlement.

Tax treatment post budget update 21-22

VPF also promises deductions under section 80C of the Income-tax Act, 1961 up to Rs 1.5 lakh in a particular fiscal year when it comes to tax-free benefit on the deposit amount, much like EPF. This exemption is also offered by PPF. VPF also promises deductions under section 80C of the Income-tax Act, 1961 up to Rs 1.5 lakh in a particular fiscal year when it comes to tax-free benefit on the investment number, much like EPF. This exemption is also offered by the PPF, too. That being said, there are variations in the tax treatment of returns received on these two investment vehicles. For PPF, the overall return received is exempted from taxation, but not more than Rs 1.5 lakh can be invested per year. There is a proposal in Budget 2021 to restrict the deduction on return received on VPF. In compliance with the proposal, if the contribution in the VPF and the EPF placed together in the financial year crosses Rs 2.5 lakh, the returns received on the contribution exceeding Rs 2.5 lakh will not be exempted from taxation.

Premature withdrawal facilities

After five years from the end of the fiscal year in which the first contribution is rendered the PPF facilitates partial withdrawal. From three years to six years from the account opening date, you can even get a loan against your PPF account. In the event of unemployment for more than two months, the entire VPF amount can well be withdrawn. For many particular reasons, such as medical emergencies, building or purchasing of a new house, house reconstruction, home loan settlement and marriage, you can make a partial withdrawal.

Our take

As we all know that Budget 2021 introduced levying tax on interest received on an individual’s contribution over Rs 2.5 lakh to a provident fund in a fiscal year. On a straightforward interpretation of the budget statements, it brings to us that the interest received on contributions made to the Employees’ Provident Fund (EPF), the Voluntary Provident Fund (VPF) and the Public Provident Fund (PPF) will be subject to taxation. That being said, in the context of EPF and VPF contributions, in order to benefit from tax exemption on interest received on EPF and VPF contributions, the amount of contributions to both EPF and VPF should not surpass Rs 2,5 lakh in a fiscal year. If in a fiscal year, the cumulative contribution of an employee to EPF and VPF together crosses Rs 2.5 lakh in a financial year, the interest received on the additional contribution will be taxable to the employee.

Under Section 80C of the Income Tax Act, 1961, PPF contributions rendered in a year are eligible for tax deductions. The permissible deposit cap for PPF accounts is also Rs.1.5 lakhs a year, so all contributions rendered towards PPF account can be claimed as exemptions under section 80C. A cumulative deduction of Rs.1.5 lakhs per year inclusive of all investment vehicles is allowed in Section 80C. PPF provides other tax advantages as well i.e. EEE benefits. It is possible to open a PPF account at approved branches of the Post Office and banks. Most of the banks such as SBI already have the service to open an online PPF account where holders can even make deposits online. You need to contact your organization’s HR department to register for VPF. One that provides you with the best return at the lowest cost is a successful investment opportunity. Both the VPF and the PPF have a sovereign guarantee, but there is no distinction in terms of risk. Both are known to be secure investment strategies for regular income. If you are willing to make a stable retirement fund VPF can be a good bet for you whereas PPF will be the best if you are going to save for your child’s education, marriage, medical issues and so on. In case you have a higher tax slab rate and are trying to contribute higher amounts for tax-free gains, both alternatives can be considered at a time.

Owning a home means many things — a roof over your head, an asset whose value may increase over time and a legacy that you can pass on to your near and dear ones. You can transfer the ownership of your property to your family through different ways, depending on your situation. Here is what you should know.

Gift deed

As per Transfer of Property Act 1882, a property is said to be gifted only if it is transferred voluntarily. Also, a gift deed must be unconditional.

You can transfer property as gift to your family or outside of your family. Once a gift deed is executed, it is irrevocable and the transfer of ownership is immediate. Further, if you transfer property via gift deed to close family — spouse, children, parents, sister or brother and grandparents, it is exempt from taxes . But gifts outside of family attract tax. That is, for any property with stamp duty value greater than Rs 50,000, tax is levied on the stamp duty value of the property. It is considered to be income from other sources and is subject to taxation based on the tax slabs.

When a property is transferred as a gift, it attracts stamp duty and registration charges. These costs vary with different States and some in fact, provide concession depending on the relationship. For instance, in Tamil Nadu, if the gift deed is executed in favour of family members (spouse, children and parents), then stamp duty rate is 1 per cent (up to a maximum of ₹25,000) and the registration charge is 1 per cent (up to a maximum of ₹4,000) on the market value of the property. If the property is gifted outside of family, then the stamp duty and registration charges are 7 per cent and 4 per cent, respectively on the market value of the property. In Maharashtra, if the property is gifted within family, the stamp duty works out to be ₹ 200.

You can’t gift a jointly-held property. Further, keep in mind that, gifts in India generally fall under the scrutiny of the tax department and, therefore, it is advisable to not only to maintain documentation but also register the gift deed.

Will

A property can be transferred through a Will as well. But the execution of the Will takes place only after the lifetime of the owner.

Property transfer under a Will is similar to that of a gift deed. However, unlike a gift deed where the ownership takes immediate effect and is irrevocable, a Will can be revoked or replaced any number of times during the lifetime of the person drawing it up. A Will need not be registered, but it is advisable to do so.

Property received under a Will is tax-exempt, even for non-relatives. Raghvendra Nath, Managing Director, Ladderup Wealth Management, says: “If the transfer is within the family, then it is always better to go with Will as inheritance doesn’t attract tax. Alternatively, if it is simply a question of convenience, say, between husband and wife or father and son, then transfer through gift deed makes sense.”

A property said to be transferred by Will only after the death of the owner of the property. However, after the death, the successor(s) needs to apply to the concerned civil authorities with the copy of the Will, succession certificate and death certificate for completing the property transfer process. Unlike other modes of transfer, property transfer through Will may take longer time.