EPF tax on withdrawal: In the wake of the Arun Jaitley Budget 2016 proposal to impose the EPF withdrawal tax, Centre was forced to clarify that only that portion of the interest accrued on Employees Provident Fund (EPF) contributions made after April 1, 2016 will be taxed at 60 percent while the rest of the 40% principal will stay exempt from all tax.
The salaried class was shocked by Monday’s Budget 2016 proposal presented by Finance Minister Arun Jaitley that suggested that 60 percent of withdrawals from EPF accounts would be taxed.
There also would be no change in the tax treatment of contributions to the Public Provident Fund (PPF), Adhia said.
Arun Jaitley while presenting the Budget for 2016-17, said 40 percent of the National Pension Scheme (NPS) corpus would be tax exempt at the time of withdrawal to make it attractive for savers. He said the annuity fund, which goes to legal heirs, also won’t be taxable.
In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made on or from April 1.
He said the government was proposing the monetary limit for contribution of employer in recognised Provident and Superannuation Fund of Rs.150,000 per annum for taking tax benefit.
The service tax on single premium annuity policies had been reduced to 1.4 percent from 3.5 percent of the premium paid in certain cases.
Similarly, Jaitley also announced exemption of service tax for annuity services provided by NPS and services provided by Employees Provident Fund Organisation (EPFO).
The clarification from Adhia seems to have come due to the uproar against the government’s proposal.
“The Finance Bill does not reflect Adhia’s clarification. Perhaps the government may change the relevant provisions,” Neha Malhotra, executive director, Nangia & Co, an international tax advisory and accounting firm, said.