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  1. EPF tax lesson for Finance Minister Arun Jaitley

EPF tax lesson for Finance Minister Arun Jaitley

EPF tax: This is not the first time that FM Arun Jaitley had to reverse his stance on a tax issue.

By: | Updated: March 8, 2016 6:21 PM
EPF tax: Earlier, in the minimum alternate tax (MAT) on FIIs matter also, he first went by the income tax department’s brief and said that the proposal could garner Rs 40,000 crore, and then after heightened opposition and reactions from the market players, he had to take back the idea after A P Shah panel recommended there was no case for it. EPF tax: Earlier, in the minimum alternate tax (MAT) on FIIs matter also, Arun Jaitley first went by the income tax department’s brief and said that the proposal could garner Rs 40,000 crore, and then after heightened opposition and reactions from the market players, he had to take back the idea after A P Shah panel recommended there was no case for it.

Budget 2016: Economic Survey pitches for curbing Rs 1 lakh crore subsidy to rich EPF tax: It is important to take the inputs of the experts in the government and also the tax departments on tax proposals, but a final decision on contentious issues must be taken after elaborate public discussion.

After widespread criticism across the board, Finance Minister Arun Jaitley has now withdrawn the controversial Employees’ Provident Fund (EPF) taxation proposal.

This is not the first time that FM Jaitley had to reverse his stance on a tax issue.

Earlier, in the minimum alternate tax (MAT) on FIIs matter also, he first went by the income tax department’s brief and said that the proposal could garner Rs 40,000 crore, and then after heightened opposition and reactions from the market players, he had to take back the idea after A P Shah panel recommended there was no case for it.

Clearly, a thorough discussion on the contentious proposal before announcing it could have saved the trouble.

Sadly, FM Jaitley committed the same mistake in his Budget for 2016-17 by proposing to tax withdrawal of 60% of accumulations in the EPF after April 1, 2016, leaving 40% as non-taxable, as against the current provision of no tax on full EPF withdrawals.

“Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans. I propose to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme (NPS). In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016”, Jaitley said in the Budget speech on February 29.

In a suo motu statement in the Lok Sabha today, he said that, “In view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal”.

Though the tax benefits announced for NPS will remain untouched, if the idea is to bring parity between the NPS and the EPF, the government will have to think about ways to improve the returns on the taxable part of the NPS corpus that has to be invested in an annuity scheme, which give poor returns.

But, the larger issue in this whole EPF tax trouble is that the government must take a lesson now from this episode for future handling of the controversial tax measures, especially in the name of taking away benefits available to the so-called wealthy or even companies.

Even the controversial 2012 retrospective tax amendment might not have come in the income tax statute if the UPA government would have indulged in a serious deliberations before making it part of the budget.

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