?
 Tax-free interest income available only on
deposit of upto Rs. 2.5 lakh annually

BUDGET
2021


Deposits of more than Rs. 2.5 lakh to be
categorised separately and shall be part of
the taxable income of subscriber subject to
tax at personal income tax rate
 1 Rs. 2.5 lakh exempt

Deposit
Rs. 5.5 lakh
in your EPF
Rs. 3 lakh categorised
account
2 separately and interest
on the same is taxable

Interest income from additional voluntary contribution of Rs. 3 lakh

makes your investment inefficient after adjusting for inflation and tax!

Why not invest your additional contribution in Equity Oriented Mutual Funds instead of PF?

Long Term Capital Gains in Equity Oriented

Potential
Equity markets in the long-term tend to Mutual Funds are taxed at 10% (on gains
of Tax
Market- deliver better inflation adjusted returns Efficiency more than Rs. 1 lakh in a Financial Year)
linked and if investments are held for more than
Returns 12 months.
Let’s understand this with the following illustrations

Illustration 1:
Excess PF contribution over Rs. 2.5 lakhs (8%) VS Investment in Equity Oriented Mutual Funds (8%)

Yearly PF Cumulative Tax on Post Tax Yearly Cumulative Tax on Post Tax
contribution Amount interest Amount Investment Amount Capital Gains Amount
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Year 1 300,000 324,000 7,200 316,800 300,000 324,000 0 324,000
Year 2 300,000 666,144 14,803 651,341 300,000 673,920 0 673,920
Year 3 300,000 1,027,448 22,832 1,004,616 300,000 1,051,834 0 1,051,834
Year 4 300,000 1,408,985 31,311 1,377,674 300,000 1,459,980 0 1,459,980
Year 5 300,000 1,811,888 40,264 1,771,624 300,000 1,900,779 0 1,900,779
Year 6 300,000 2,237,354 49,719 2,187,635 300,000 2,376,841 0 2,376,841
Year 7 300,000 2,686,646 59,703 2,626,943 300,000 2,890,988 0 2,890,988
Year 8 300,000 3,161,098 70,247 3,090,851 300,000 3,446,267 0 3,446,267
Year 9 300,000 3,662,120 81,380 3,580,739 300,000 4,045,969 0 4,045,969
Year 10 300,000 4,191,198 93,138 4,098,061 300,000 4,693,646 0 4,693,646
Year 11 300,000 4,749,905 105,553 4,644,352 300,000 5,393,138 0 5,393,138
Year 12 300,000 5,339,900 118,664 5,221,236 300,000 6,148,589 0 6,148,589
Year 13 300,000 5,962,934 132,510 5,830,425 300,000 6,964,476 0 6,964,476
Year 14 300,000 6,620,859 147,130 6,473,729 300,000 7,845,634 0 7,845,634
Year 15 300,000 7,315,627 162,569 7,153,057 300,000 8,797,285 0 8,797,285
Year 16 300,000 8,049,302 178,873 7,870,429 300,000 9,825,068 0 9,825,068
Year 17 300,000 8,824,063 196,090 8,627,973 300,000 10,935,073 0 10,935,073
Year 18 300,000 9,642,210 214,271 9,427,939 300,000 12,133,879 0 12,133,879
Year 19 300,000 10,506,174 233,471 10,272,704 300,000 13,428,589 0 13,428,589
Year 20 300,000 11,418,520 253,745 11,164,775 300,000 14,826,876 872,688 13,954,189
22,13,475 11,164,775 6,000,000 Tax on Capital 13,954,189
Gains only on
Total Tax on Value of PF redemption Value of Investment
Interest Contribution in Equity Oriented
Mutual Funds

Post Tax Return 5.60% Post Tax Return 7.49%

Note: TDS @10% on EPF interest is deducted on accrual every month, however for illustration purposes let us assume the amount invested and taxation is an annual event at the maximum marginal rate
(assuming to be 30% excluding surcharge & cess). Capital gains on equity-oriented investments are charged at the time of redemption (tax on long-term capital gains in excess of Rs. 1 lakh is applicable at
10%, without the benefit of indexation, excluding surcharge & cess) unlike in EPF where tax is applicable on the interest income annually on the additional voluntary contribution.
Illustration 2:

Excess PF contribution over Rs. 2.5 lakhs (8%) VS Investment in Equity Oriented Mutual Funds (10%)

Yearly PF Cumulative Tax on Post Tax Yearly Cumulative Tax on Post Tax
contribution Amount interest Amount Investment Amount Capital Gains Amount
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Year 1 300,000 324,000 7,200 316,800 300,000 330,000 0 330,000
Year 2 300,000 666,144 14,803 651,341 300,000 693,000 0 693,000
Year 3 300,000 1,027,448 22,832 1,004,616 300,000 1,092,300 0 1,092,300
Year 4 300,000 1,408,985 31,311 1,377,674 300,000 1,531,530 0 1,531,530
Year 5 300,000 1,811,888 40,264 1,771,624 300,000 2,014,683 0 2,014,683
Year 6 300,000 2,237,354 49,719 2,187,635 300,000 2,546,151 0 2,546,151
Year 7 300,000 2,686,646 59,703 2,626,943 300,000 3,130,766 0 3,130,766
Year 8 300,000 3,161,098 70,247 3,090,851 300,000 3,773,843 0 3,773,843
Year 9 300,000 3,662,120 81,380 3,580,739 300,000 4,481,227 0 4,481,227
Year 10 300,000 4,191,198 93,138 4,098,061 300,000 5,259,350 0 5,259,350
Year 11 300,000 4,749,905 105,553 4,644,352 300,000 6,115,285 0 6,115,285
Year 12 300,000 5,339,900 118,664 5,221,236 300,000 7,056,814 0 7,056,814
Year 13 300,000 5,962,934 132,510 5,830,425 300,000 8,092,495 0 8,092,495
Year 14 300,000 6,620,859 147,130 6,473,729 300,000 9,231,745 0 9,231,745
Year 15 300,000 7,315,627 162,569 7,153,057 300,000 10,484,919 0 10,484,919
Year 16 300,000 8,049,302 178,873 7,870,429 300,000 11,863,411 0 11,863,411
Year 17 300,000 8,824,063 196,090 8,627,973 300,000 13,379,752 0 13,379,752
Year 18 300,000 9,642,210 214,271 9,427,939 300,000 15,047,727 0 15,047,727
Year 19 300,000 10,506,174 233,471 10,272,704 300,000 16,882,500 0 16,882,500
Year 20 300,000 11,418,520 253,745 11,164,775 300,000 18,900,750 1,280,075 17,620,675
22,13,475 11,164,775 6,000,000 Tax on Capital 17,620,675
Gains only on
redemption Value of Investment
Total Tax on Value of PF
Interest Contribution in Equity Oriented
Mutual Funds

Post Tax Return 5.60% Post Tax Return 9.43%

Note: TDS @10% on EPF interest is deducted on accrual every month, however for illustration purposes let us assume the amount invested and taxation is an annual event at the maximum marginal rate
(assuming to be 30% excluding surcharge & cess). Capital gains on equity-oriented investments are charged at the time of redemption (tax on long-term capital gains in excess of Rs. 1 lakh is applicable at
10%, without the benefit of indexation, excluding surcharge & cess) unlike in EPF where tax is applicable on the interest income annually on the additional voluntary contribution.
Illustration 3:

Excess PF contribution over Rs. 2.5 lakhs (8%) VS Investment in Equity Oriented Mutual Funds (12%)

Yearly PF Cumulative Tax on Post Tax Yearly Cumulative Tax on Post Tax
contribution Amount interest Amount Investment Amount Capital Gains Amount
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Year 1 300,000 324,000 7,200 316,800 300,000 336,000 0 336,000
Year 2 300,000 666,144 14,803 651,341 300,000 712,320 0 712,320
Year 3 300,000 1,027,448 22,832 1,004,616 300,000 1,133,798 0 1,133,798
Year 4 300,000 1,408,985 31,311 1,377,674 300,000 1,605,854 0 1,605,854
Year 5 300,000 1,811,888 40,264 1,771,624 300,000 2,134,557 0 2,134,557
Year 6 300,000 2,237,354 49,719 2,187,635 300,000 2,726,704 0 2,726,704
Year 7 300,000 2,686,646 59,703 2,626,943 300,000 3,389,908 0 3,389,908
Year 8 300,000 3,161,098 70,247 3,090,851 300,000 4,132,697 0 4,132,697
Year 9 300,000 3,662,120 81,380 3,580,739 300,000 4,964,621 0 4,964,621
Year 10 300,000 4,191,198 93,138 4,098,061 300,000 5,896,375 0 5,896,375
Year 11 300,000 4,749,905 105,553 4,644,352 300,000 6,939,940 0 6,939,940
Year 12 300,000 5,339,900 118,664 5,221,236 300,000 8,108,733 0 8,108,733
Year 13 300,000 5,962,934 132,510 5,830,425 300,000 9,417,781 0 9,417,781
Year 14 300,000 6,620,859 147,130 6,473,729 300,000 10,883,914 0 10,883,914
Year 15 300,000 7,315,627 162,569 7,153,057 300,000 12,525,984 0 12,525,984
Year 16 300,000 8,049,302 178,873 7,870,429 300,000 14,365,102 0 14,365,102
Year 17 300,000 8,824,063 196,090 8,627,973 300,000 16,424,914 0 16,424,914
Year 18 300,000 9,642,210 214,271 9,427,939 300,000 18,731,904 0 18,731,904
Year 19 300,000 10,506,174 233,471 10,272,704 300,000 21,315,733 0 21,315,733
Year 20 300,000 11,418,520 253,745 11,164,775 300,000 24,209,621 1,810,962 22,398,659
22,13,475 11,164,775 6,000,000 Tax on Capital 22,398,659
Gains only on
Total Tax on Value of PF redemption Value of Investment
Interest Contribution in Equity Oriented
Mutual Funds

Post Tax Return 5.60% Post Tax Return 11.38%

Note: TDS @10% on EPF interest is deducted on accrual every month, however for illustration purposes let us assume the amount invested and taxation is an annual event at the maximum marginal rate
(assuming to be 30% excluding surcharge & cess). Capital gains on equity-oriented investments are charged at the time of redemption (tax on long-term capital gains in excess of Rs. 1 lakh is applicable at
10%, without the benefit of indexation, excluding surcharge & cess) unlike in EPF where tax is applicable on the interest income annually on the additional voluntary contribution
Disclaimer:
Source: Internal data compilation. The calculations shown are for illustration purpose only. SBI Mutual Fund does not
guarantee returns on equity oriented mutual funds to the investor. In view of the individual circumstances and risk profile, each
investor is advised to consult their investment/tax advisor(s) before planning to invest. Investment in mutual funds is subject to
market risks hence, the performances of the two investment options are not strictly comparable. In the above calculations, it
has been assumed that an investor falls under highest tax bracket (i.e., 30%). Gains on the redemption of units of mutual fund
are treated as capital gains for income tax purpose. For equity-oriented schemes, gains on the investment for <=1 year are
treated as Short-Term Capital Gains (STCG) and taxed at 15% while gains on investment greater than 1 year are treated as
Long-Term Capital Gains (LTCG) and are taxed at 10% (without the benefit of indexation) if an individual’s total capital gains
cross Rs. 1 lakh in a financial year as per current tax regulations.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.