Keep this in mind that many would need to increase their EPF contributions by taking the VPF course. Hasn’t this made your financial savings more profitable, but it also ensures that the hobby earned through the use of EPF and VPF contributions remains tax-free?
This is due to the effectiveness of April 1, 2021 (fiscal year 2021-22), earned hobby of the ETH account may be taxable if the worker’s personal contribution exceeds the desired amount. This specified limit further contains the contributions made by the worker through the use of the Voluntary Provident Fund (VPF) to the EPF account.
So, if a worker’s personal contribution through the use of EPF and VPF exceeds Rs 2.5 lakh in a monetary year, then the hobby earned at the additional amount may be taxable in the arms of ‘a person. Another EPF account could be opened to credit the earned hobby to the additional contribution.
So how much should be invested using VPF to ensure that the hobby earned from EPF and VPF dues no longer becomes taxable? Indeed, the aggregate of contributions to the EPF account through the use of EPF and VPF must no longer exceed Rs 2.5 lakh in any monetary year. Resolution of the query, on the other hand, is based on the required EPF contribution that you pay each month.
There are two techniques for understanding your mandatory EPF contributions:
a) Check the required EPF contribution on your payslip.
b) Calculate the 12% of your basic salary to enter the mandatory EPF contribution.
Once your compulsory annual contribution to ETH, the similar sum should be subtracted from Rs 2.5 lakh. This will let you know how much you can invest using VPF.
Here is an example of how you would calculate your annual VPF dues.
Let’s say you earn Rs 30,000 per month as your base salary. Compulsory EPF contribution involves Rs 3600 monthly (12% of Rs 30,000). The annual contribution of the EPF is Rs 43,200 (Rs 3600 X 12). The maximum amount you will be able to invest using VPF could be Rs 2,06,800 (Rs 2.5 lakh less Rs 43,200) in a monetary year. This is the maximum amount you will be able to invest while ensuring that the earned hobby remains tax-free on your hands.
If you are an executive
For executives or those whose employer no longer pays contributions to the EPF account, the limit is Rs 5 lakh instead of Rs 2.5 lakh. Using the example above, the maximum amount one can invest using VPF can be Rs 4,56,800 (Rs 5 lakh less Rs 43,200).
Not just a one-time workout
Once the VPF contribution is understood, you should certainly no longer assume that a similar amount will continue as smartly over the years. This is because each time you get a salary increase, your mandatory EPF contribution also increases. Thus, you need to ensure that you will be able to contribute through the use of the VPF without crossing the exemption threshold in future years as smartly.
In continuation of the example above, consider submitting the assessment season, the fundamental salary is increased to Rs 35,000. The compulsory annual contribution rises to Rs 50,400. Therefore, the maximum amount that the can bring using the VPF will be reduced to Rs 1,99,600 (Rs 2.5 lakh minus Rs 50,400).