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EPF tax in Budget 2016: With PF withdrawal tax proposal in Arun Jaitley's Budget 2016 causing a controversy to break out across the country and the social media erupting in fury plus the trade unions threatening a strike, the Narendra Modi govt rushed to clear the air. An official said as far as taxing provident fund (PF) withdrawals was concerned, PPF withdrawals will continue to be fully exempt from income tax and that only the interest accruing after April 1, 2016 on 60 per cent of the contributions made to Employee PF (EPF) will be taxed. Here are the top 5 reasons why the govt has proposed this move that has shaken the world of employees:
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1. 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.
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2. EPF tax in Budget 2016: "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.
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3. 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. (Reuters)
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4. 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.
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5. 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. (Reuters)
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