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Another option is an LIC pension scheme for senior citizens called Pradhan Mantri Vaya Vandana Yojana.

Q.It had been reported that accrual of interest in EPF accounts in excess of ₹2.50 lakh during FY22 is taxable income. Kindly clarify the following:

a) Is accrued interest in excess of ₹2.50 lakh taxable income in respect of GPF account holders, also considering that there will be no employer contribution to GPF accounts of their employees.

b) Is accrued interest in excess of ₹2.50 lakh in relation to the employee portion of EPF or both employee and employer portions of EPF?

c) Also, please clarify if any methodology has been designed for computation of the accrued interest during 2021-22 since the individual EPF or GPF account slips will be issued to employees at some time after completion of the FY. But, individual Income Tax liabilities are to be assessed, recovered and remitted by the employers by April 4 every year.

V. Ravindra Kumar

N. Sree Kanth: With effect from April 1, 2021, interest accrued on contribution by an employee in excess of ₹2,50,000 (EPF and Voluntary PF) will be taxable in the hands of the employee.

Point-wise replies are as follows:

a) In case of GPF (usually for government employees) wherein there would be no contribution from the employer, then the threshold limit for contribution by employees on which interest accrued is taxable is ₹5,00,000

b) Interest accrued for contribution in excess of ₹2,50,000 is only for the employee’s contribution and not applicable for the employer’s contribution

c) CBDT released a notification dated August 31, 2021, inserting Rule 9D, which throws light upon the mechanism as to the methodology to compute the taxable portion of the interest accrued on the excess contribution over the aforementioned threshold.

Two separate provident fund accounts are to be maintained wherein the first account will be for the non-taxable contribution, this account shall have the balance as on March 31, 2021, including the interest accrued thus far and is to be added with employee contribution up to the threshold limits and the interest accrued on such contributions under the threshold limit and the interest accrued on the balance prior to March 31, 2021, minus any withdrawals.

The second account will be for the taxable contributions. This account shall have the excess contribution over the threshold plus the interest accrued on such excess contribution minus any withdrawals.

Q. I am a salaried individual earning ₹10 lakh per annum.

I plan to buy my first car at a budget of ₹5-6 lakh by saving money. My time horizon for corpus building is 2-3 years. I am investing ₹25,000 a month in MFs. How do I buy my first car by saving money?

Ashwin Kumar V.A.

Vidya Bala: It is good to know that you prefer to save and buy a car than go for an EMI. You should be able to comfortably reach your target corpus in 24 months if your current investment of ₹25,000 per month is able to deliver just 6% per annum.

This is assuming that you have no other use for the monthly savings of ₹25,000. Please note that given the short time frame, going excessively on equity funds can be very risky. If you hold more than say 20-30% in equity funds, book out some profits and invest in debt funds or simply put in large bank FDs. This way whatever you earned in an extraordinary market like 2021 will be preserved and you will ensure that your corpus does not take any sudden hit due to market declines closer to your goal.

I had invested ₹56,000 in June 2017 in an ELSS with dividend option. After three years, the amount was switched over to growth option in June 2020. When can I redeem the amount without any exit load?

Vidya Bala: There are two aspects here. One the lock-in period for an ELSS and two, the exit load applicable for any fund if redeemed before a minimum holding period. We think you are referring to the the lock-in period. Since you have moved to growth from dividend, it is considered as fresh investment (eligible for Section 80C tax benefit) and the lock-in of 3 years again applies.

That means you can redeem post June 2023. Exit load is the amount you pay as a fee for exiting a fund before a certain period of holding. In your case, since this is an ELSS fund already subject to lock-in, there will be no exit load when you are eligible for redemption.

Q. My father-in-law has ₹18 lakh and wants to distribute it among five of his daughters — all senior citizens — by means of FDs or any such savings funds or pension plans. Which scheme suits us best?

Mohammed Ikramulla

Vidya Bala: Since all the daughters are senior citizens, they can consider Senior Citizens’ Savings Scheme available in major banks and post office. It is government backed and will also provide superior returns than most options today.

Another option is an LIC pension scheme for senior citizens called Pradhan Mantri Vaya Vandana Yojana.

(K. Sree Kanth is partner, GSS Associates Chartered Accountants, Chennai and Vidya Bala is co-founder Primeinvestor.in)