How Budget 2021 will impact my tax planning for FY 2021-22

Before this Budget, maturity proceeds of ULIP schemes had been tax-free as per part 10(10 D) of the Income Tax Act.

The most necessary facet of the Budget 2021 is that there’s no tax hike. Major modifications proposed are in ULIP and PF taxation. ULIP is an funding possibility which additionally supplies life insurance coverage cover. The premium which one pays for ULIP goes partly for insurance coverage cover and part of it goes in the direction of investments.

Before this Budget, maturity proceeds of ULIP schemes had been tax-free as per part 10(10 D) of the Income Tax Act. In the Budget 2021, the exemption of part 10(10 D) has been eliminated for ULIPs. This means if ULIP is issued after 1st Feb’21 and mixture annual premium is greater than Rs 2.5 lakh, the maturity quantity could be taxed on the rate of 10% if its long-term acquire (if acquire is greater than Rs 1 lakh) and on the rate of 15% if it’s short-term acquire. For already bought ULIPs (earlier than 1st Feb’21), these modifications usually are not relevant. This means maturity proceeds will stay tax-free.

Another main change proposed is about taxation of curiosity on EPF. If workers contribution to EPF is greater than Rs 2.5 lakh in that year, the curiosity could be taxable identical to tax on fastened deposits in a financial institution. These provisions could be relevant from 1st April 2021. The premium paid for ULIPs or contributions to EPF each are eligible for tax saving deduction u/s 80C of the Income Tax Act. Due to tax on maturity for ULIPs and tax on curiosity of EPF, the post-tax returns of those two investments are decreased.

As per part 80C, one can do most tax-saving investments of Rs 1.50 lakh. Most of this bracket is crammed by sure tax-saving bills like faculty tuition charges, dwelling mortgage EMI (precept) and so forth. Therefore, one ought to confirm how a lot tax he has already saved out of this Rs 1.50-lakh bracket. Now one can consider opting for NPS over EPF for two causes. Firstly, returns in NPS are market linked and so there may be the potential for good wealth creation over long run. Secondly, from final year, lump sum withdrawal (60% of corpus) has been made 100% tax-free.

As far as ULIPs are involved, one can consider opting for time period insurance coverage for buying life cover and ELSS for investing for development. With these modifications within the Budget 2021, tax payers ought to do an knowledgeable and sensible tax planning.

(By Sujit Bangar, Founder,

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