I retired on 30 June 2023. I have an EPF corpus of Rs 85 lakh. If I don’t withdraw from it, will the interest earned be subject to tax? Is it better to transfer the EPF corpus to my NPS tier 1 account to earn tax-free interest and growth? Please advise on how to grow my corpus to beat inflation in a tax-efficient manner.
Amit Maheshwari, Partner, AKM Global:
According to the provisions of the Income-tax Act, 1961, and aligned rules, withdrawal of EPF corpus on retirement, after a continuous service of at least five years, will be tax-exempt under Section 10(12). The interest earned on the corpus after retirement will be subject to tax. If the amount is not withdrawn within the specified time of three years, the account becomes inoperative and the EPFO will stop paying interest on the fund. The transfer of the EPF corpus to NPS tier 1 account is tax-exempt under Section 10(12) as the transferred amount is not considered a contribution to the NPS account in the current year. Early withdrawals of up to 25% from the NPS tier 1 account, for specified purposes are tax-exempt under section 10(12B). The interest earned on the NPS tier 1 account is tax-exempt. At maturity, 60% of the amount due from the pension account is exempt from tax under Section 10(12A), while the remaining 40% is taxable. However, if the remaining 40% is reinvested in an annuity plan, it becomes non-taxable, though the income earned through the annuity plan is subject to taxation. Hence, the interest earned on the NPS tier 1 account is exempt from tax. You can consider other financial factors like liquidity and financial returns with the help of a financial adviser.
My mother bought a piece of land in Bengaluru in 1984. She recently sold it for Rs 59 lakh, out of which my brother took Rs 37 lakh and bought a house. My mother wants to give the rest to me. Will my brother have to pay tax on capital gains as he has registered the house in his name? I also want to know if I can make a gift deed and use the money for myself.
Shubham Agrawal, Senior Taxation Adviser, TaxFile.in: Any capital gain from the sale of property is charged to the seller, which is your mother in this case. She should get the fair value of land assessed as on 1 April 2001 and reduce the indexed value from sale proceeds to calculate the capital gain. Various modes of reinvestment are available under the Income-tax Act so that the capital gain is exempt from tax. The reinvestment should be in the name of the seller, or in joint names, where one person is the seller. In your case, the house is in your brother’s name. Your mother is still entitled to pay the capital gains tax (if any) on these sale proceeds. There is no tax liability for your brother as he has received the sum as a gift from his mother, and gifts from specified relatives are exempt from tax. As far as your share is concerned, you should make a gift deed and accept the money and then use it as per your desire.
I am in the highest tax bracket and want to save tax on my profits in equities, mutual funds and derivatives. I have transferred my mutual fund investments to my wife’s demat account and stocks to my daughter’s demat account. I plan to start filing tax returns for my wife and daughter to get taxed at a lower rate. Should I sell my investments and buy them again in their names, and then get them pledged to get the trading limit for options trading?
Raj Khosla, Founder and Managing Director, MyMoneyMantra.com:
As per Indian laws, you can gift shares or funds to your wife or daughter subject to income-tax regulations. The gifts will be tax-free in the hands of the receiver, but any income generated will be taxable in the hands of the donor. Even if you gift funds/shares, any income from the gifted assets received by your wife/minor daughter shall be treated as your income for the purpose of income-tax levy. However, if your daughter is a major, the clubbing provision of Section 64 will not apply and you can transfer money/shares to her. Any income accruing in her name would be taxed in her hands at the applicable tax rate. However, investments are made with financial goals in mind and these should not be redeemed solely for saving tax. Selling shares/mutual funds and investing in family members’ names will still be considered a gift, and income from such investments will be clubbed with your income. It would seem that your plan is not ideal, so consult certified financial advisers before making any transactions.
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