The finance ministry has taken a step back on its Budget announcement on taxing the withdrawal of employee provident fund (EPF). A day after Finance Minister Arun Jaitley said that 40% of the total EPF corpus would be exempt from tax and 60% would be taxed. Revenue secretary Hasmukh Adhia clarified that the ministry is not talking about the entire 60% corpus but only its interest component. That too, contribution to the corpus from April 1, 2016, and not the accumulated corpus.
The proposal has drawn angry responses. A K Padmanabhan, board member of the Employees’ Provident Fund Organisation’s Central Board of Trustees (CBT) and president of CITU, said that,“Beyond a nominal lock-in of just 12 months, the government is willing to completely exempt from tax on investment by a person in the equity markets. But it now wants to tax lifelong savings of a worker, accrued from tax-paid income, even after a lock-in of 25 years. How logical is that?”
\\\"I think there is a very strong chance of this thing being completely rolled back,\\\" Sonu Iyer, tax partner & national leader - people advisory services, EY India said.
The rule, the ministry statement said, that it applies to only \\\"about 60 lakh contributing members who have accepted EPF voluntarily and (they) are highly paid employees of private sector companies\\\".
\\\"This category can, at present, withdraw money without any tax liability. We are changing this. What we are saying is that such an employee can withdraw without tax liability, provided he contributes 60% in annuity products, so that pension security can be created for him, according to his earning level,\\\" it said.
\\\"However, if he chooses not to put any amount in an annuity product, tax would not be charged on 40%,\\\" said the statement. The finance ministry said that, \\\"The purpose of this reform of making the change in the tax regime is to encourage more number of private sector employees to go for pension security after retirement, instead of withdrawing the entire money from the PF account\\\".
\\\"So, what it means is that the entire corpus will be tax-free, if invested in annuity,\\\" said the finance ministry statement.
By Premji
