In Budget 2016-17, the government is likely to announce a proposal to amend the Employees’ Provident Fund Act of 1952 to make contributions to the employees’ pension scheme (EPS) managed by the EPFO optional. Explaining the proposal, Revenue Secretary Hasmukh Adhia said contributions to the Public Provident Fund (PPF) will continue to remain exempted from tax.
In the Budget, it was proposed that after April 1, employees will have to pay income tax on 60 per cent of the amount withdrawn from the EPF. The Revenue Secretary also clarified that this is not a revenue mobilisation exercise and this 60 percent will also be tax exempted if it is invested in a pension annuity scheme.
Union Finance Minister Arun Jaitley’s announcement in the budget to levy tax on the withdrawal of Employee Provident Fund has evoked sharp reactions with opposition parties likening it to anti-middle class measure.
Adhia also said that employees with salaries of up to Rs 15,000 a month will be exempt from the EPF tax altogether.
Finance Minister Arun Jaitley’s Budget 2016 presented on Monday proposed to tax a big chunk of Employee Provident Fund (EPF) withdrawals from April 1, 2016, a move that disappointed almost six crore people.
At present, social security schemes run by retirement fund body EPFO are tax free ‘Exempt-Exempt-Exempt (EEE)’ scheme under which deposits, accrual of interest and withdrawals are tax free. The tax treatment for public provident fund, an optional savings scheme which was highly popular with investors, has been left untouched.
The tax will be imposed on EPF corpus withdrawal exceeding Rs 1.5 lakh each. “If they don’t roll it back, we will hold a nationwide strike”, said G Sanjeeva Reddy, president, INTUC, and member of the Central Board of Trustees, EPFO.
“PPF contributions will continue to be tax exempt”.
As it stands now: With the clarification only interest accrued on 60% of pension funds will be taxed during withdrawal.
The minister also proposed to exempt from service tax the Annuity services provided by the NPS and services provided by EPFO to employees. “Parity among products on tax treatment will ensure that those who want to take the equity route can go for NPS, and conservative investors can go for EPF”, said Vishal Dhawan, a Mumbai-based certified financial planner. However, your corpus is tax free. “Rs 60 lakh you invest in annuity so that you keep getting pension”, he said.
However, the Finance Bill 2016 provides that there would be monetary ceiling of Rs1.