Will it make sense to put money into VPF after adjustments in tax guidelines kick in?

Many folks put money into a voluntary provident fund (VPF) for his or her retirement corpus because it enjoys the identical benefits as the worker’s provident fund (EPF). However, the federal government in Budget 2020 has proposed adjustments within the taxation of EPF which is more likely to affect the attractiveness of VPF as nicely. Budget 2021 has proposed that worker contributions made to the EPF above ₹2.5 lakh would set off taxability on the curiosity accrued on the quantity above the edge restrict. Will it make sense to proceed investing in VPF after this modification, particularly for these within the increased tax bracket? Through VPF, an worker can contribute a sum increased than the necessary 12% from one’s wage below EPF. The rate of interest on VPF is similar as EPF, which the federal government normally declares in direction of the tip of a monetary 12 months. VPF additionally provides the identical tax advantages as EPF. It falls below the exempt-exempt-exempt (EEE) tax construction—you get tax deduction profit on the time of funding, and there’s no tax payable on accrual or withdrawal. When you alter jobs, you may as well transfer your VPF funds similar to you progress EPF. Both are linked to a Universal Account Number (UAN). The withdrawal guidelines are additionally the identical. However, taxation guidelines for VPF are going to vary as soon as the brand new tax guidelines get kick in from 1 April. Experts imagine VPF will proceed to stay a pretty choice provided that its post-tax return will likely be higher than most of the conventional mounted devices reminiscent of financial institution mounted deposits. “VPF continues to be enticing within the present scheme of issues because the rate of interest on varied different devices have come down drastically. cEven the tax-free bonds are giving a yield of 4.5% which is decrease than the post-tax return of VPF,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories, a Sebi-registered investment adviser. “In case there is a change in the interest rate scenario and yield starts going up one may look at other options,” he added. “One can take a look at choices relying on their threat profile. For conservative buyers, gilt funds or fixed maturity gilt funds or goal date gilt/index funds could be an excellent choice. But earlier than that one should utilise the general public provident fund (PPF) restrict,” mentioned Naveen Julian Rego, registered funding advisor and licensed monetary planner. Subscribe to Mint Newsletters * Enter a legitimate e-mail * Thank you for subscribing to our publication.