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EPF tax in Budget 2016: Centre rushes to clarify, says PPF tax exempt, but EPF to be taxed on withdrawal, aam aadmi worried

Wed March 02 2016, 12:52 pm
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    EPF tax in Budget 2016: Clearing the air on taxing provident fund (PF) withdrawals, the government today said PPF withdrawals will continue to be fully exempt from income tax and only interest accruing after April 1, 2016 on 60 per cent of the contributions made to Employee PF (EPF) will be taxed. (Image Source: Reuters)

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    EPF tax in Budget 2016: All contributions and interest accrued to employee provident fund (EPF) before April 1, 2016, will not attract any tax on withdrawal. Withdrawal of principal amount contributed to EPF after April 1 would also remain exempt from any tax. It is only the interest on contributions made after April 1, 2016 which will be taxed, Revenue Secretary Hasmukh Adhia said in an interview here. (Image Source: Reuters)

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    EPF tax in Budget 2016: "There is no change in the status of public provident fund (PPF). EEE (tax exempt at the time of contribution, tax exempt on returns and tax exempt on withdrawals) scheme will continue for PPF," he said. "There is no 40 per cent limit on PPF. It will be 100 per cent exempt". Adhia said out of the 3.7 crore active contributors in EPF, about 70 lakh corporate sector employees with high salary would be impacted by the proposed taxation of EPF interest on withdrawal. (Image Source: Reuters)

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    EPF tax in Budget 2016: "There are about 3 crore people whose monthly income is less than Rs 15,000. They are called eligible members of EPF. For this 3 crore people, there is going to be no change in status of taxation. They can withdraw their 100 per cent corpus when they retire without any taxes," Adhia said, adding that the distinction would be made clear in the notification. (Image Source: Express Photo)

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    EPF tax in Budget 2016: The Budget 2016-17 proposed to tax interest on 60 per cent of EPF withdrawal. However, the withdrawn amount would be totally tax exempt if it is re-invested in annuity pension products. "The purpose is not to mobilise revenue. We want people to move towards a pension society. So we have given another incentive wherein the investment in annuity product will be tax exempt. Annuity product was always taxable. But here, even after death of a person when the money is transferred to legal heir, we have made it tax exempt," Adhia explained. (Image Source: Reuters)

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    EPF tax in Budget 2016: "We are worried about people blowing off the entire 100 per cent amount on retirement and not investing in pension products. Otherwise, the responsibility comes on government to take care of healthcare," Adhia said. (Image Source: Reuters)

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    EPF tax in Budget 2016: Explaining further Adhia said the government proposes to change the provision not to take tax from salaried class, but to help people plan for retirement better. "We are saying, 40 per cent of it (EPF amount) will be available at the time of retirement. For the remaining 60 per cent, we want to encourage you to invest in annuity product. (Image Source: Reuters)

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    EPF tax in Budget 2016: So if your corpus is Rs 1 crore, Rs 40 lakh you withdraw and use it for house construction or other work... Rs 60 lakh you invest in annuity so that you keep getting pension," he said. (Image Source: Reuters)

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    EPF tax in Budget 2016: However, central trade unions have opposed the Budget proposal to tax EPF withdrawals and as many as 11 of them have planned to go on a nationwide strike on March 10 to protest against government's unilateral labour reforms and anti-worker policies including taxation of EPF withdrawals. (Image Source: Reuters)

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    EPF tax in Budget 2016: "This is an anti-worker budget proposal. Taxing PF means double taxation. PF is deducted from a salary on which workers have already paid tax... Tax should be imposed on new income. PF accumulation are not generated or new income," BMS General Secretary Virjesh Upadhyay said. (Image Source: Reuters)

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    EPF tax in Budget 2016: He said BMS would write to Prime Minister Narendra Modi and Jaitley to protest against these proposals and demand to roll those back." All India Trade Union Congress General Secretary Gurudas Dasgupta said this issue would be raised by left parties in Parliament while debate on the Budget. (Image Source: Reuters)

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    EPF tax in Budget 2016: At present, social security schemes run by retirement fund body EPFO fall under Exempt-Exempt-Exempt scheme in which deposits, accrual of interest and withdrawals are tax free. Chartered Accountancy firm Nangia & Co said the current tax structure of National Pension Scheme (NPS) was Exempt-Exempt-Tax, which was at a sharp disadvantage to the other major retirement products such as the Employees Provident Fund (EPF) and the Public Provident Fund (PPF). (Image Source: Reuters)

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    EPF tax in Budget 2016: "To remove the anomalies and inconsistencies in the taxation of the NPS, the Government has given partial relief by giving exemption of 40 per cent at the time of withdrawal in order to encourage retirement savings," Nangia & Co Executive Director Neha Malhotra said. (Image Source: Reuters)

  1. H
    Hakkim
    Mar 1, 2016 at 2:14 pm
    This government has cheated tax payer & will be out of business.
    Reply
    1. V
      Virodhi Singh
      Mar 1, 2016 at 7:51 pm
      This is the double standard of gov. Very easy to to hunt employees. one side gov buried for social security of old and retired people another side taxed on EPF which pure and pure tax paid amount. Employee representative must protest against it.
      Reply

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