New PF Deduction Rules 2021: Here are some key changes in salary structure, taxation and insurance that will become effective from April 1, 2021.
How your savings, investments, insurance needs get impacted from April 1, 2021.
New Rules April 1 2021: The way you save, invest, insure and pay tax will witness some key changes from the next financial year 2021-22. Some of the new rules in taxation and the re-structuring of the salary structure of employees will impact your take-home pay from April 1, 2021 . At the same time, new standard insurance products will help you in making a better buying decision. Overall, the rules and regulations are here to stay and one will have to make them work to one’s advantage.
Here are some key changes in salary, tax and insurance that will become effective from April 1, 2021.
In her budget 2021 announcements, the FM had proposed that the interest earned on an employee’s contribution above Rs 2.5 lakh in a year will become taxable in the hands of the employee. As of today, the entire PF contribution earns a tax-free return and the PF amount enjoys EEE status.
But, from April 1, 2021, the taxation of PF contributions will see a change. The interest earned on contribution above Rs 2.5 lakh per annum will be taxable as per one’s tax slab similar to how interest income from bank fixed deposit is taxed.
However, there has been a recent amendment to this rule. “The government has announced that they are extending the permissible limit for employee EPF interest earning from 2.5 lakh to 5 lakh (in the case where employer contribution to EPF is not happening). Beyond Rs 5 lakhs of interest earnings, employees will get taxed,” says Prashant Singh, Vice President & Business Head – CPO, TeamLease Services.
If your monthly Basic Salary is nearly Rs 1.75 lakh ( just the basic salary and not your total monthly income), your monthly contribution is nearly Rs 20833, which is Rs 2.5 lakh in a year. Nothing changes for you and interest earned on the entire PF balance remain tax-exempt. The new PF contribution rules will not impact an employee whose monthly contribution is below Rs 20,833. However, if your Basic Salary is above Rs 1.75 lakh, there’s no escaping tax on interest earned.
New Wage Code
The new Labour Codes may bring a sea-change in the salary structure of the employees. “To comply with this new definition of wages under the Code of Wages 2019, the employers will have to restructure the basic wages component of employees from top to bottom, expected to be implemented from April 1, 2021,” says Prashant Singh, Vice President & Business Head – CPO, TeamLease Services.
Currently, the ratio between basic salary and other components of the salary including allowances is not a fixed number. Going forward, there will be a standard ratio across employees to be maintained by the employers. “The major concern is the wages ( basic wages) should be more than 51% of the gross wages. Therefore, the employer has to fix at least 51% as basic wages + DA & the rest components of the allowances can be fixed not more than 49% as enumerated in the exclusion clause of wages definition,” adds Singh.
Will this impact employee’s take-home pay? “Employee take-home salary will get reduced towards social security kitty as well as post-retirement gratuity, the scheme will prove beneficial to employees in the long run. However, while the new wage code is set for an April rollout, clarity is yet to emerge on many provisions,” informs Singh.
Exemption from filing ITR
Interest income received from SCSS, bank fixed deposit etc is taxed as per one’s income slab under the head ‘income from other sources. And, pension from the ex-employer is taxed under the income tax head of Salary while family pension is taxed as ‘income from other sources’. The senior citizens who are above 75 years of age and have only pension and interest income need not file Income Tax Return (ITR).
Standard personal accident insurance policy
With the objective of having a standard product with common coverage and policy wordings across the industry, the IRDAI has decided to mandate all general and health insurers to offer a standard personal accident insurance product. The product will have a basic mandatory coverage while insurers will be allowed to add any optional covers as well. The pricing in terms of premium is, therefore, left for the insurers to arrive at. General and Health Insurers will have to offer Standard personal accident insurance policy from April 1, 2021.
Standard Pension policy
Buying a pension or an annuity plan will become much easier now. IRDAI has asked all life insurance companies to offer Standard Individual Immediate Annuity Product, ‘Saral Pension’ with effect from from April 1, 2021. The regulator has released the guidelines on Standard Individual Immediate Annuity Product, ‘Saral Pension’ by defining the benefits, features, terms and conditions and annuity options.
Anyone between 40 and 80 years can invest in Saral Pension which will be a Single Premium plan i.e. one will have to invest a lump sum amount to get regular pension on Monthly, Quarterly, Half-Yearly or Yearly basis. The minimum amount of pension will be Rs. 1000 per Month, Rs. 3000 per Quarter, Rs. 6000 Per half-year and Rs. 12000 per annum. The amount invested is called Purchase Price in annuity plans.
Standard Vector-Borne Disease Health Policy
In order to make available Vector-Borne Disease-specific health insurance product addressing the needs of insuring public for getting health insurance coverage to specified Vector-Borne Diseases, all general and health insurers have been asked by IRDAI to offer Standard Vector-Borne Disease Health Policy covering Dengue fever, Malaria, Chikungunya etc. from April 1, 2021.
Higher TDS for non-filers of ITR
If you have not been filing ITR, be ready to be taxed at a higher rate on certain income including interest income that you earn during the year. “The Finance Minister in Budget 2021 has introduced a special provision of TDS in the income tax act. This section imposed a higher TDS rate on the individuals who have not filed income tax returns, but their income is liable for TDS deduction of more than Rs. 50,000 in the last two preceding previous years. The rate of TDS shall be higher of – Twice at the rates specified in the relevant provisions of the income tax act or at the rate of five per cent. This rule of TDS shall be applicable with effect from 1st July 2021,” says Archit Gupta, Founder and CEO, ClearTax.