1. EPF tax withdrawal: How much you may well pay post Arun Jaitley Budget 2016

EPF tax withdrawal: How much you may well pay post Arun Jaitley Budget 2016

How much EPF tax on withdrawal you may have to pay: After the Arun Jaitley's Budget 2016 proposal to tax 60% of an individual's Employees' Provident Fund (EPF) corpus at the time of withdrawal, salaried people across income levels have reacted with shock and anger.

By: | New Delhi | Updated: March 5, 2016 3:36 PM
epf tax, epf tax on withdrawal, epf tax budget, epf tax 2016, epf tax benefit, epf tax rules, epf tax deduction, epf taxable, epf taxable income, epf new rules How much EPF tax on withdrawal you may have to pay: Assuming, after Arun Jaitley’s Budget 2016 proposal comes into effect,  that one starts EPF deposit of Rs 70,000 on year one and one’s contribution increases by 10% every year for the next 20 years and the rate of interest is 8.8% every year, then the total accumulated EPF balance will be Rs 84.11 lakh. If 60% of the corpus is taxed at withdrawal, then the individual will have to pay tax on Rs 50.46 lakh.

How much EPF tax on withdrawal you may have to pay: After the Arun Jaitley’s Budget 2016 proposal to tax 60% of an individual’s Employees’ Provident Fund (EPF) corpus at the time of withdrawal, salaried people across income levels have reacted with shock and anger. Their reaction is well justified as bulk withdrawal will be taxed at 30% rate and part of their retirement savings will be taken away in tax, which, till now, has been exempt from tax at all stages. New entrants to the EPF will be the worst affected as the new rule will not apply to EPF balance accumulated till April 2016.

There is no clarity whether the entire 60% of the corpus at the time of withdrawal will be taxed or just 60% of the interest earned after April this year will be taxed. Assuming that one starts EPF deposit of Rs 70,000 on year one and one’s contribution increases by 10% every year for the next 20 years and the rate of interest is 8.8% every year, then the total accumulated EPF balance will be Rs 84.11 lakh. If 60% of the corpus is taxed at withdrawal, then the individual will have to pay tax on Rs 50.46 lakh. If only 60% of the interest earned on total contribution is taxed at withdrawal, then the tax amount will be Rs 26.4 lakh.

The Budget proposed that if the employee purchases annuity with 60% of the corpus, then there will be no tax imposition. However, it’s important to keep in mind most annuity products of life insurance companies offer interest rates of 6-7% and the returns are taxable.

EPF tax withdrawal
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Assumptions:
1    Year 1 is the first year of contribution to EPF
2    The EPF contribution is Rs 70,000 in year 1
3    The EPF contribution increases at the rate of 10% per year
4    Interest earned on EPF is 8.8% per year throughout

Note: If the employee purchases annuity from the entire EPF proceeds, it would not trigger taxability

  1. A
    ajay
    Mar 5, 2016 at 11:32 am
    Last time BJP came to power Arun Shourie was selling PSUs to Private Parties. This time Arun Jaitley is selling EPFO savings of service cl to private parties managing annuities. Mr Jaitley is acting as Insurance Agent for Multinational Insurance Companies, bowing to their wishes he has already increased FDI in Insurance sector to 49%. No wonder Mr Jaitley lost elections and had to be brought in through back door entry. Smooth talking Mr jayant Sinha is his accomplice in this act. Remember when his father Mr Yashwant Sinha brought in Rs 40 increase in LPG prices and 5% service tax. Mr Modi is also involved as has given a go ahead for taxing EPF. BJP is now very conviniently playing Good Cop - Bad Cop game with the common man. Believe me BJP miniters have hatched this plot together and are equally responsible. Mr Hasmukh Aadhia is merely a servant echoing his Masters voice like a parrot. AAche Din aa e Mr. Modi has snatched Rs 15,00,000 /- from all service cl people accounts which he had promised to put in their accounts by bringing black money back to India. This is the retirement money a service cl person aculates after working for 30 - 35 years. For Black money ders he has brought in a scheme with no questions asked. BJP has proved themselves to be a anti service cl government both times it has come to power. Please dont vote for BJP and please ensure your family and kin ( children, their families and their relatives ) dont vote for this anti service cl / anti middle cl party. Lets all vow for a "BJP MUKT BHARAT" . Lets start with the embly elections this year.
    Reply
    1. A
      anil
      Mar 6, 2016 at 9:45 am
      If the corpus is taxed, then you get back Rs. 68,96,745 against your contribution of 40,09,249 (Tax paid will be Rs. 15,13,920). If the interest earned is taxed then you get back Rs. 76,18,409 against the same contribution (Tax paid will be Rs. 792,255). Don't forget that you have already saved Tax of Rs. 8,01,849.80 (@ 20% rate) plus Rs. 4,59,227.82 (interest on savings at 8.8%), making a total of Rs. 12,61,077.62. So what is the fuss about? Why a clarity is not given in the article above? What is the significance of mentioning the taxable amount and not the Tax amount? Is it to create a negative opinion?
      Reply
      1. C
        chanakya
        Mar 6, 2016 at 5:42 am
        bogus article. EPF withdrawl is not taxed if re-invested in equity to provide a fixed monthly income .
        Reply
        1. Ram Khuspe
          Mar 5, 2016 at 2:23 pm
          Have a look at this #Budget2016 #VikasKaBudget
          Reply
          1. Ram Khuspe
            Mar 5, 2016 at 2:22 pm
            Have a look at this...
            Reply
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