EPF tax: After uproar, government to consider rollback


Updated

New Delhi, Mar 1 (PTI): Under all-round attack, the government today promised to consider demands for a rollback of the proposal to tax 60 per cent of withdrawals from provident fund and a ceiling on employers contribution but made it clear that PPF will continue to be exempt from tax.

Revenue Secretary Hashmukh Adhia went a step further to say that only 60 per cent of interest on contributions made after April 1 will be taxed and that the principal amount of contribution will remain untouched at the time of withdrawal.

However, a government press note issued today made no mention about taxing only the interest.

It claimed that the new tax proposal was aimed at taxing only the high salaried individuals totalling about 70 lakh people out of the 3.7 crore employee provident fund (EPF) members. About 3 crore individuals come under the statutory wage limit of Rs 15,000 per month so will not be affected by the proposed changes.

Finance Minister Arun Jaitley in his Budget for 2016-17 yesterday had proposed that 60 per cent of the withdrawal on contribution to employee PF made after April 1 this year will be subject to tax. This would apply to superannuation funds and recognised provident funds including EPF.

He also proposed a monetary limit for contribution of employer in recognised PF and superannuation fund at Rs 1.5 lakh per annum for taking tax benefit.

The proposal came under immediate attack from various employees unions including RSS-backed BMS, and political parties who termed it as "an attack on the working class and a clear case of double taxation."

The Finance Ministry issued a press note containing a clarification about the proposed changes in the tax treatment of recognised PFs and recognised pension schemes noting that there seems to be some amount of lack of understanding about the changes made in the Budget on the issue.

"We have received representations today from various sections suggesting that if the amount of 60 per cent of corpus is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount.

"We have also received representations asking for not having any monetary limit on the employer contribution under EPF, because such a limit is not there in NPS. The Finance Minister would be considering all these suggestions and taking a view on it in due course," the press note said.

All contributions and interest accrued to EPF before April 1, 2016, will not attract any tax on withdrawal.

The press note said the purpose of this reform of making the change in 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 Provident Fund Account.

Towards this objective, the Government announced that 40 per cent of the total corpus withdrawn at the time of retirement will be tax exempt both under recognised Provident Fund and NPS.

"It is expected that the employees of private companies will place the remaining 60 per cent of the corpus in annuity, out of which they can get regular pension.

When this 60 per cent of the remaining corpus is invested in Annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity," it said.

The Government in the Budget also made another change to say that when the person investing in annuity dies and when the original corpus goes in the hands of his heirs, then again there will be no tax.

The idea behind this mechanism, it said, was to encourage people to invest in pension products rather than withdraw and use the entire corpus after retirement.
"However, in EPFO, there are about 60 lakh contributing members who have accepted EPF voluntarily and they are highly - paid employees of private sector companies. For this category of people, amount at present can be withdrawn without any tax liability. We are changing this," the press note said.

Such employee can withdraw without tax liability provided they contributes 60 per cent in annuity product so that pension security can be created for him according to his earning level. However, if he chooses not to put any amount in annuity product the tax would not be charged on 40 per cent only.

"There is no change in the existing tax treatment of Public Provident Fund (PPF)," it said.

Currently there are no monetary ceilings on the employer contribution under EPF with only ceiling being that it would be 12 per cent of the salary of the employee member. Similarly, there is no monetary ceiling on the employer contribution under NPS, except that it would be 10 per cent of salary.

The Finance Bill 2016 provides that there would be monetary ceiling of Rs 1.5 lakh on employer contribution considered with the ceiling of the 12 per cent rate of employer contribution, whichever is less.

In an interview to PTI, Adhia said said withdrawal of principal amount contributed to EPF after April 1 would remain exempt from any tax and its only the interest on contributions made after April 1, 2016 which will be taxed.

"The purpose (of the Budget proposal) 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," he said.

  

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Comment on this article

  • Vincent Rodrigues, Promenade Road,Frazer Town,B'lore

    Wed, Mar 02 2016

    Many important areas have been ignored in the budget and need to be roll backed.This is a political budget and government gimmick

    DisAgree Agree [1] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Wed, Mar 02 2016

    They finally realized a Cobbler cannot do a Tailors job, hence all the U-Turns & Alterations ...

    DisAgree [2] Agree [4] Reply Report Abuse

  • Albert D'Souza, San Francisco/Mangalore

    Wed, Mar 02 2016

    Remember Modi Government may be like Chandrashker Government. treasury may be empty. India may be Bankrupt. Only tax on imported oil & savings from oil import foreign exchange helping balance the books. Once the oil price in the international market hits $ 100.00 per barrel Government may collapse along with Indian economy. Food price may skyrocket & property and housing price will come down

    DisAgree [3] Agree [5] Reply Report Abuse

  • Hussain, Abudhabi

    Wed, Mar 02 2016

    Ab ki baar L board sarkar

    DisAgree [2] Agree [3] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Wed, Mar 02 2016

    Both these Budgets are USELESS ...

    DisAgree [3] Agree [5] Reply Report Abuse

  • Evans Christopher Sumitra, UDUPI/NEW YORK,USA.

    Wed, Mar 02 2016

    This is very bad for the working middle class people. These guys worked hard and our government wants to tax on their money. This is a stupid idea.

    DisAgree [2] Agree [6] Reply Report Abuse

  • John, Udupi

    Tue, Mar 01 2016

    Hmmmmm! If everything was done in the right spirit and fair play, no clarification was necessary!. 11 point clarification itself indicates the ulterior motives of this BJPeeeee!. The best budget that took India on a entirely different path and a path breaking path was of Man Mohan Singh in early 90's! None came close to him nor will anyone come close to him!. I salute MMS and PVNS for whatever India is today!. Disgusting is that, today's people who didnt even understand 1 1 are today talking as if India is their slave!

    DisAgree [4] Agree [27] Reply Report Abuse

  • Dodda mahesh, Mlore

    Tue, Mar 01 2016

    Manmohan singh donno abcd of the budget.

    Jailey rocks. Great mindblowing budget from jaitley hats off to u sir.

    DisAgree [46] Agree [2] Reply Report Abuse

  • Raviraj Shetty, Mangalore/UAE

    Wed, Mar 02 2016

    Dodda mahesh, Mlore, give chance to Jantlee he will rock you also. Once again no one is like Mr.Manmohan. People like you who doesn't work hard and depend on others talk like you, because you don't know the hard earn moneys value.

    DisAgree [2] Agree [10] Reply Report Abuse

  • Edward R. Monteiro, Kulshekar, Mangalore

    Wed, Mar 02 2016

    Mr. Dodaa Mahesh: I do not belong to any political party.
    Do not make a fool of yourself by posting such cheap comments of Mr. Manmohan Singh saying he does not KNOW abcd of budget.The whole world acknowledges him as an Economist, whereas the present Finance minister is a Lawyer, remember this.
    It was Mr Manmohan Singh, who took the bold step to bring India out of the woods by bringing in drastic changes in economy by introducing Reforms, the benefits of it are seen today and the BJP who was opposing Tooth and Nail the reforms including the FDI in Retail Sector and GST Bill, and now continuing the policies of the previous government.They had not allowed the Parliament to function during the last 10 years with many disruptions. If the reforms were not introduced in the 90's then, today, India would have gone with the BEGGING BOWL in the International Market. Indian economy was in doldrums in those years of 1990's. The revolution in the telecom sector was brought in by Late PM Mr. Rajeev Gandhi in the year 1985, by bringing in Mr. Sam Pritoda, who was instrumental in introducing Electronic Exchanges in in India. Mangalore was having outdated Strawgear Telephone Exchange which was changed to E-10B Electronic Exchange in 1992.
    Even when the Crude Oil was costing US$140 per barrel in 2014, and local price for Petrol was about Rs. 78/- per liter, Indian Rupee against US$ was about Rs. 58/ he managed well. See the condition today, when the crude is below US$30 per barrel, the price of petrol in Mangalore is around Rs. 62/-, because the present govt increasing the duties on petroleum products, to offset the loss of revenue, rate of Indian Rupee is around Rs. 68/- and may cross Rs. 70/- shortly.
    So be realistics and do not make silly comments for the sake of commenting. Remember our comments posted here are read by the people throughout the world. Jai Hind.

    DisAgree [3] Agree [8] Reply Report Abuse

  • MASTHAN, DUB

    Wed, Mar 02 2016

    MAHESH
    UR JAITLEY IT SELF TOLD MANMOHAN SINGH WAS A GREAT FINANCE MINISTER.

    DisAgree Agree [3] Reply Report Abuse

  • Dodda mahesh, Mlore

    Tue, Mar 01 2016

    Jaitley is 1000 times better than manmohan singh. Jaitley handled well. Great fantastic budget.
    15 lakhs also u might receive in coming days. But only for bjp supporters.

    Congress and other parties only we can offer u laddu.

    DisAgree [40] Agree [4] Reply Report Abuse

  • Dodda mahesh, Mlore

    Tue, Mar 01 2016

    All hindus from other parties should join bjp.

    Even pappu and kejriwal are welcome. If u join then after 10 years of modi, then 5 years we can make pappu and kejriwal pm of india.
    Or else u people will keep on losing all the time.
    Jai ho modiji

    DisAgree [41] Agree [4] Reply Report Abuse

  • geoffrey, hat hill

    Tue, Mar 01 2016

    There seems to be a typo error in your name, 'o' should be replaced by 'a'

    DisAgree [2] Agree [9] Reply Report Abuse

  • Gopal, Mangalore

    Wed, Mar 02 2016

    Please check your comment dislikes loll

    DisAgree [2] Agree [6] Reply Report Abuse

  • Raviraj Shetty, Mangalore/UAE

    Wed, Mar 02 2016

    Only chapters join supports BJP.

    DisAgree [2] Agree [7] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Wed, Mar 02 2016

    Dodda, We all know when BJP starts loosing they finally play the Hindu CARD ...

    DisAgree Agree [3] Reply Report Abuse

  • Dodda mahesh, Mlore

    Tue, Mar 01 2016

    If congress was ruling the tax would have been 50%. Even due to global crisis. Modi has done excellent job. He should increase the tax of 25%. So he can stable the economy.
    Jai ho modiji ur a star.

    DisAgree [41] Agree [1] Reply Report Abuse

  • Peter, Bangalore

    Tue, Mar 01 2016

    Who voted modi in last election ?
    Answer is middle class.
    Now chant "modi modi modi "

    DisAgree [6] Agree [42] Reply Report Abuse

  • Dodda mahesh, Mlore

    Tue, Mar 01 2016

    What is ur problem.

    Middle classnpeople are more happy with modi and his budget.

    If congress was ruling then it would have been 50% tax.

    DisAgree [39] Agree [2] Reply Report Abuse

  • Raviraj Shetty, Mangalore/UAE

    Wed, Mar 02 2016

    what is your problem?

    DisAgree [2] Agree [4] Reply Report Abuse

  • Suleman Byari, Udupi

    Tue, Mar 01 2016

    If you give/leave everything you earned to the Govt., then there is no headache,tax. or confusion clear...

    DisAgree [1] Agree [23] Reply Report Abuse

  • Santan Mascarenhas, Kinnigoli/Mumbai

    Tue, Mar 01 2016

    Mr PM & FM
    You give 11 or 100 clarifications, this new change is draconian and harsh on hard working employees. Till 69 years, no one dared to touch the retirement benefits, but, you people now want to cut the retirement benefits of common man.
    Shame on you two. We know after some time, you will have u turn, but even your thinking on that direction is shameful. Che Che Tu Tu.

    DisAgree [4] Agree [34] Reply Report Abuse

  • Krish, Dubai

    Tue, Mar 01 2016

    Yesterday our entertainer jossey was giving about sensex fall while Budget was going on.
    His badluck today sensex increased by 777 points, Disappointed jossey switch off his computer.

    I was waiting for his sensex today also.

    DisAgree [30] Agree [7] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Tue, Mar 01 2016

    Krish, even the Punters at NSE know that Modi rocks & the common man is always the SUCKER ...

    DisAgree [2] Agree [4] Reply Report Abuse

  • Krish, Dubai

    Wed, Mar 02 2016

    Can you please Clarify
    When Modi Rocks while SENSEX go up or Down
    Common Man sucks while sensex go up or down?

    And when u r giving in comments? when Only modi rocks??

    DisAgree [1] Agree [1] Reply Report Abuse

  • Santosh,K, Mangalore

    Tue, Mar 01 2016

    MODI ji make India as tax free country, we can call that You given ache din for Indians Don't fool us.

    DisAgree [3] Agree [27] Reply Report Abuse

  • Jossey Saldanha, Mumbai

    Tue, Mar 01 2016

    I had warned him "Hume Apne Haal Pe Chhod Do".
    Why tinker with things you do not understand & then blame others ...

    DisAgree [4] Agree [30] Reply Report Abuse


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Title: EPF tax: After uproar, government to consider rollback



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