LET’S CONSIDER SOME IMPORTANT CHANGES FOR FY 2022-23;

1. NPS CONTRIBUTION: For the central government employees, the government was already contributing 14% of employee’s wages towards employee’s NPS account. Starting this FY, state government employees will receive a 14% contribution into their NPS account from their respective state governments. Deduction for employer contribution to NPS has been increased from 10% to 14% for state government employees on par with central government employees. However, it has not been extended to non-govt employees.

PLEASE NOTE THAT:

A. An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. No tax benefits are available for investment in Tier II Account ,so keep in mind while choosing investment in NPS.

B. Corporate Employees:

i) 80CCD(1), which comes under Section 80C, covers self-contribution. Salaried employees can claim a maximum deduction of 10% of their salary.

ii) Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit. This tax benefits come under Section 80C.

iii) Corporates

Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

iv) Person engaged in business/profession: you can claim deduction of 20% of your Gross Total Income u/s. 80CCD(1) of the IT Act,1961. He/she is not able to claim deduction u/s. 80CCD(2).

v) Tax Deduction by investing in NPS as follows;

Deductible

Maximum limit Section

Mandatory deduction from salary towards retirement

Rs.1.5 lakh 80CCD (1)

Voluntary contribution towards NPS by employer

10% of basic salary 80CCD (2)

Voluntary contribution towards NPS made by employer

Rs.50,000 80CCD (1b)

2. EPF CONTRIBUTION: In EPF, 12% of wages is contributed by the employee but rules allow the employee to contribute a higher amount as a voluntary provident fund. Till now, the entire contribution earned tax-free interest income. Going forward, if your contribution towards EPF is more than Rs 2.5 lakh a year, the interest earned on the amount exceeding the threshold limit will be taxable. For the government employees, the limit will stand at Rs 5 lakh.

PLEASE NOTE THAT: In the Union Budget 2021, Finance Minister Nirmala Sitharaman had announced that the interest earned on employees’ contributions their provident fund in excess of Rs 2.5 lakh a year will be subject to tax.

The Income Tax Department has proposed that there will be two accounts in EPF Account of an employee, these are Taxable Account and Non-Taxable Account. The contribution up to Rs. 2.50 Lakhs will be credited in Non-Taxable Account and contribution above Rs. 2.50 Lakhs will be credited in Taxable Account. The interest in Non-Taxable Account will be tax free and interest in Taxable Account will be taxable in the hand of employee as “ Income From Other Sources”.

Let’s understand through an example:

Mr. A, an employee contributing Rs. 55000/- pm in EPF and he has withdrawn Rs. 3,00,000/-in the month of January,2022. Mr. A’s total contribution as on 01/04/2021 was of Rs. 30,00,000/- and the rate of interest will be @7.1% p.a. The Calculation of Taxable and Non-Taxable contributions are as follows;

CALCULATION OF NON-TAXABLE & TAXABLE INTERESTS (EPF)
Paid in the Month of Monthly Contrib-ution Cumulative Balance at the end of month Excess Amount /Amount over threshold Limited Interest @7.1% p.a. on balance at the end of month Non-Tax-able Interest Tax-able Interest
Apr-21 55,000 55,000 325 325  
May-21 55,000 1,10,000 651 651  
Jun-21 55,000 1,65,000 976 976  
Jul-21 55,000 2,20,000 1,302 1,302
Aug-21   2,50,000   1,479 1,479
  55,000 2,50,000 25,000 1,627 1,627 148
Sep-21 55,000 2,50,000 80,000 1,953 1,479 473
Oct-21 55,000 2,50,000 1,35,000 2,278 1,479 799
Nov-21 55,000 2,50,000 1,90,000 2,603 1,479 1,124
Dec-21 55,000 2,50,000 2,45,000 2,929 1,479 1,450
Withdrawn  -1,05,000  -2,45,000 –  
Jan-22 55,000 2,00,000 –   1,183 1,183
Feb-22 55,000 2,50,000 5,000 1,509 1,479 30
Mar-22 55,000 2,50,000 60,000 1,834 1,479 355
TOTAL 6,60,000 2,50,000 60,000 20,649 16,419 4,378

CLOSING BALANCES IN TAXABLE AND NON-TAXABLE ACCOUNTS TO BE CARRY FORWARD FOR FY 2022-23

NON-TAXABLE CONTRIBUTION ACCOUNT AND TAXABLE CONTRIBUTION ACCOUNT

Sr. No. Particulars for FY 2021-22 Non-Taxable Amount (Rs.) Taxable Amount (Rs.)
1 Opening Balance as on 01/04/2021 30,00,000
2 Interest Accrued on Opening Balance @7.1% 2,13,000
3 Contribution made up to threshold limit /excess of limited in FY 2021-22 2,50,000 60,000
4 Interest Accrued on the amount within threshold/ above threshold limit 16,419 4,378
5 TOTAL AMOUNT OF CONTRIBUTION DURING THE YEAR FY 2021-22 4,79,419 64,378
6 TDS @10% in case PAN is available and linked with Aadhaar. NIL 438
7 TDS @20% in case PAN is not available and not linked with Aadhaar. NIL
8 TDS @30% in case Non-Residents ( subject to DTAA) NIL
  Closing Balance as on 31/03/2022. 34,79,419 63,941

PF WITHDRAWAL RULES 2022

The Employees’ Provident Fund Organization (EPFO) has revised several of its rules regarding withdrawal from the Provident Fund (PF) account in 2021. The aim of these revisions is to provide easier access to their PF funds to subscribers who are facing financial difficulties due to the coronavirus pandemic.

According to the new rules, PF account holders can withdraw money equivalent to three months of their basic salary plus dearness allowance or 75% of the net balance in their PF or EPF account, whichever is lower.

This will be taken as a non-refundable deposit. These withdrawal claims can be raised online. Online claims are stipulated to be settled within 3 working days while offline claims can take up to 20 days for settlement.

PLEASE NOTE THAT:

1. EPF corpus withdrawal is exempted from tax but under certain conditions. Tax exemption on EPF corpus is permitted only if an employee contributes to the EPF account for 5 continuous years. The EPF amount is taxable if there is a break in the contribution to the account for 5 continuous years. In that case, the entire EPF amount will be considered as taxable income for that financial year.

2. Tax is deducted at source on premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs.50,000, then TDS is not applicable. Keep in mind, if an employee provides PAN with the application, the applicable TDS rate is 10%. Otherwise, it is 30% plus tax.

3. Form 15H/15G is a declaration form, which states that a person’s total income is not taxable and thus, TDS is avoidable.

4. In case of person facing unemployment for a period of one months ,he may withdraw the amount from EPF Account , but he has to prove his unemployment. You can withdraw 75% of the Corpus in this case.

5. An employee does not have to await approval from the employer for EPF withdrawal anymore. It can be done directly from the EPFO, provided the employee’s UAN and Aadhaar are linked, and the employer has approved it. EPF withdrawal status can be checked online.

6. Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus 1 year before retirement, provided the person is not less than 54 years old.

7. The withdrawal from account is allowed only in case of emergency or on circumstances mentioned below;

Reasons

Eligibility Withdrawal Limit

Housing Loan for construction or addition of house/purchase of site/flat

Minimum 60 months of service

Up to to 36 months of his/her basic along with DA/ the total of employee and employer shares with interest/ the total cost of the house

Marriage of self / son / daughter / brother / sister or for post matriculation education of children

Minimum 84 months of service

Up to 50% from the EPF account

One year before retirement

Should be above 54 years of age

Up to 90% of his/her EPF amount

Medical expenses/Natural Calamity/purchase of equipment by physically handicapped/closure of factory/cut in electricity in establishment

No minimum service tenure

Up to 6 months of his/her basic and DA/ the entire contribution

3. FILE AN UPDATED IT RETURN: A new provision permitting taxpayers to file an updated return on payment of additional tax has been introduced. This updated return can be filed within two years from the end of the relevant assessment year. This new system of filing revised ITR will help taxpayers voluntarily declare any missed income and reduce litigation.

The Union Budget has sought to give opportunity to taxpayers to rectify mistakes related to misreporting of income when filing income tax return for a financial year. It has created a provision for allowing such taxpayers to file an updated return within two years from the end of the relevant assessment year. This is irrespective of whether the taxpayer has filed a return previously for the relevant assessment year, or not.

The filing of the updated return will be allowed only after payment of a of amount equal to 25% or 50% as additional tax on the tax payable on the additional income furnished.

Facts to Kept in Mind While Tax Planning for FY 2022-23

PLEASE NOTE THAT :

1. In this case the government has provided a window of two years from end of relevant Assessment Year to rectify any mistake in return filed earlier.

2. You cannot file a rectified return to claim refund or increase loss or decrease profit declared in earlier returns. You are allowed to rectify only mistakes.

3. You are allowed to declare if any income missed out or you have claim excessive deduction, rebate ,etc. and want to declare you income and not to claim deductions to increase loss or reduce profit or claim refund in the return filed earlier.

4. Further, as a deterrence against tax evasion, the Budget has provided that no set off of any loss shall be allowed against undisclosed income detected during search and survey operations. This is in response to cases where individuals or entities have set off brought forward losses against undisclosed income detected in search operations. With this provision, such individuals will no longer find any space to wiggle out of tax liability.

4. VIRTUAL DIGITAL ASSETS TAX: Virtual Digital Assets will include cryptos such as Bitcoin, Ethereum, etc., and other digital assets such as Non-fungible tokens (NFTs) and will be subject to taxation.

Income from transfer of any virtual digital asset is to be taxed at the rate of 30% applicable from April 1, 2022.

TDS of 1% to be charged on payments made for transfer of virtual assets applicable from July 1, 2022 and the gift of virtual digital assets will also be taxed in the hands of the recipient.

PLEASE NOTE THAT:

1. The Government has not given legal tender to the Virtual Digital Assets.

2. On contrary the income arise due to trading of virtual asset will be taxable @30%. Since income from all sources ,whether illegitimate or legitimate will be taxable under provisions of Income Tax Act, 1961.

Latest updates – Clarification on proposed Section 115BBH in Budget 2022

1. Losses incurred from one virtual digital currency cannot be set-off against income from another digital currency.

2. Infrastructure cost incurred on mining crypto assets will not be treated as cost of acquisition.

Union Budget 2022 Outcome:

1. Income from transfer of virtual digital assets such as crypto, NFTs will be taxed at 30%.

2. No deduction, except the cost of acquisition, will be allowed while reporting income from transfer of digital assets.

3. Loss from digital assets cannot be set-off against any other income.

4. Gifting of digital assets will attract tax in the hands of receiver.

5. Losses incurred from one virtual digital currency cannot be set-off against income from another digital currency.

As per the standard income tax rules, the gains on the crypto-transactions would become taxable as

(i) Business income or

(ii) Capital gains.

This classification will depend on the investors’ intention and nature of these transactions.

If there are frequent trades and high volumes, gains from the cryptocurrency transactions will be taxed as ‘business income’.
However, they will be taxed as ‘capital gains’ if the purpose of owning them is primarily to benefit from longer-term appreciation in value with fewer trades.

The nature of classification has to be reviewed for every taxpayer, and taxpayers must take the help of an expert for accurate reporting.

5. POST OFFICE SCHEMES: The government has made it mandatory for the use of savings account for credit of monthly, quarterly, yearly interest in case of post office MIS, SCSS, time deposit accounts.

The Department of Post has decided for mandatory linking of either PO Savings Account or Bank Account for crediting of interest payment of Senior Citizen Savings Scheme, MIS and TD Accounts and the last date to do so is 31 March 2022.

If you are withdrawing interest income earned on post office MIS, SCSS and time deposit accounts in the form of cash, you may not be able to do so from April 1, 2022.

It further stated that in case an account holder is not able to link his/her Savings Account with MIS/SCSS/TD accounts up to 31.03.2022 and interest is credited in MIS/SCSS/TD sundry office accounts, the outstanding interest should be paid only through credit in PO Savings Account or by Cheque. Interest on MIS/SCSS/TD accounts will be credited only in account holder’s PO Savings Account or Bank Account with effect from 01.04.2022.

Post offices have come up with many schemes and policies for their customers over the years and have generated trust amongst all because it is completely government-backed. One of the most renowned savings accounts in India is believed to be the Post Office Savings account.

From tax-saving benefits to great interest rates, post office savings schemes are highly-beneficial for the scheme-holders.

Scheme

Interest Rate (Updated) Minimum Invest-ment Maximum Invest-ment Eligibility Tax Implicat-ions
Post Office Savings Account 4% Rs. 20
Rs. 50 (if not by  cheque)
No limit Individuals
Minors
Exempted Interest up to Rs. 50,000
Kisan Vikas Patra Account 6.9% per annum (Annually Compounded) Rs. 1,000 No limit Individual Interest is taxed but the maturity amount is tax-free
National Savings Certificates (NSC) 6.8% per annum (Annually Compounded) Paid at maturity Rs. 100 No Limit Individual Tax benefit up to Rs. 1,50,000 under Section 80C of the IT Act
National Savings Monthly Income Account 6.6% per annum payable monthly Rs. 1,500 For Individual holder Rs. 4.5 lakhs
For Joint holders Rs. 9 lakhs
Individual Interest earned is taxable with no deductions
National Savings Recurring Deposit Account 5.80% Rs. 10 No limit Individuals including Minors Exempted Interest up to Rs. 50,000
National Savings Time Deposit Account 5.5% – 6.7% Rs. 200 No limit Individual Section 80C deduction on deposits for 5 Years
Public Provident Fund Account (PPF) 7.1% per annum (Annually Compounded) Rs. 500 annually Rs. 1,50,000 annually Individual Tax benefits can be availed under Section 80C of the IT Act
Senior Citizen Savings Scheme Account 7.4% per annum (Annually Compounded) Rs. 1,000 Rs. 15 lakhs People above 60 and 50 years of age who have taken VRS or superannuation Tax benefits can be availed under Section 80C of the IT Act
Tax deductions if the interest earned is more than Rs. 50,000
Sukanya Samriddhi Account 7.6% per annum (Annually Compounded) Rs. 1,000 annually Rs. 1,50,000 annually Girl Child with age up to the age of  10 years Interest and maturity amount is tax-free under Section 80C of the IT Act

Key Features of Post Office Savings Account

  • The account holder is permitted to close the account at any time as per their convenience.
  • Minors above the age of 10 are allowed to operate post office savings account.
  • In order to keep your post office savings account active, you are required to transact in the account once in 3 years. You can do so by either depositing or withdrawing the amount.
  • One is required to open the account only by doing a cash deposit.
  • Post office savings account provides nomination facility both at the time of opening the account and after opening the account.
  • Maximum ₹10,000 interest earned within a financial year is tax-free as per the Income Tax act 80TTA.
  • The account holder is allowed to transfer their savings account from one branch of the post office to another.
  • As per the convenience of account holders, the joint accounts can be converted into single accounts and vice versa.
  • Once you open the account, you can make further deposits and withdrawals via electronic modes in CBS post offices.
  • You can also make the transactions via any ATM machines available near you.

INCOME TAX TREATMENT OF INTEREST ON POST OFFICE DEPOSITS/ACCOUNTS

Under Section 10(15)(i) of the Income Tax Act, interest received from the post office savings account is exempt from tax for up to Rs 3,500 for individual accounts and Rs 7,000 in the case of joint accounts per financial year. Such exemption is also available under the new tax regime. It was notified under a government notification dated June 3, 2011.

The said exemption is available in addition to the tax benefit of Rs 10,000 under Section 80TTA and Rs 50,000 under Section 80TTB (for senior citizens) of the Income Tax Act.

This means that you claim tax relief under section 80TTA for Rs 10,000 on savings account interest, and you can further claim the benefit of up to Rs 3,500 on interest earned from savings account in the post office and up to Rs. 7,000 if it is a joint account.

CONCLUSION: tracking or keeping in mind of regulatory updates and various provisions of applicable laws will provide you edge and you will prepare or plan your transactions such that , you can get most benefits and save your taxes. Please note that you have to plan under provisions of Income Tax Act, 1961 and not allowed to use dubious methods to reduce your tax liability. The legislature allowed Tax Planning and not Tax Evasion or Tax Avoidance.

DISCLAIMER: the article produced here is only for sharing information to the readers. The article has been prepared on the basis of available materials at different forums at the time of preparation. The views expressed here are the personal views of the author and same will not be considered as professional advice. In case of necessity do consult with tax professionals.

Author Bio

Qualification: CS
Company: SBI GENERAL INSURANCE COMPANY LIMITED
Location: MUMBAI, Maharashtra, India
Member Since: 25 Aug 2018 | Total Posts: 313
A Qualified Company Secretary, LLB , LIII , Bsc( Maths) BHU, Certification in Insurance Risk Management ( ICSI-III) have completed Limited Insolvency Examination and having more than 20 years of experience in the field of Secretarial Practice, Project Finance, Direct Taxes ,GST, Accounts & F View Full Profile

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One Comment

  1. Subramanian says:

    To claim additional exemption for Post Office SB interest we need a separate column in the Income Tax return form. In ITR2 there is only one column for Interest from Savings Bank (Schedule OS 1(b)(i). Can we deduct the amount from the SB interest and show in this column and the amount of Rs 3500 or 7000 under Exempt Income?

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