After a taxing week, Employee Provident Fund tax free again

Making a suo motu statement in Lok Sabha, Jaitley also announced a rollback on the proposal that imposed a tax on the employer’s contribution of over Rs 1.5 lakh.

By: ENS Economic Bureau | New Delhi | Updated: March 9, 2016 6:22 am
Jaitley in his office on Tuesday. (Express Photo: Renuka Puri) Jaitley in his office on Tuesday. (Express Photo: Renuka Puri)

Finance Minister Arun Jaitley Tuesday announced a rollback of his budget proposal to tax 60 per cent of the employee provident fund (EPF) corpus at the time of withdrawal and said that the government would do a “comprehensive review” of the proposal. This comes on the back of attacks from contributors, MPs and employee unions, including the BJP’s own trade union wing, the Bharatiya Mazdoor Sangh.

Making a suo motu statement in Lok Sabha, Jaitley also announced a rollback on the proposal that imposed a tax on the employer’s contribution of over Rs 1.5 lakh.

“In view of the representations received, the government would like to do a comprehensive review of this proposal and, therefore, I withdraw the proposals made in para 138 and 139 of my budget speech. The proposal of 40 per cent exemption given to NPS subscribers at the time of withdrawal remains,” he said.

Para 138 of Jaitley’s budget speech said: “In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016.” Para 139 said: “Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. Also, we are proposing a monetary limit for contribution of employer in recognised provident and superannuation fund of Rs 1.5 lakh per annum for taking tax benefit.”

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The budget announcement relating to EPF taxation drew strong criticism from the employees’ representatives on the board of the Employees’ Provident Fund Organisation (EPFO) and they threatened to hold nationwide agitation if the proposals were not rolled back.

In its defence of the proposal immediately after the budget, the Finance Ministry had maintained that out of around 3.7 crore contributing members of EPFO, nearly 3.26 crore subscribers were within the statutory wage limit of Rs 15,000 per month and for them, there wouldn’t be any change in the new dispensation.

Though the government clarified that the money would not attract tax if the contributor were to put 60 per cent of the corpus in annuity products of insurance companies, even this came under fire. “A number of representations have been received from various sections of the society including members of Parliament suggesting that this change will force people to invest in annuity products even if they are not willing to do so,” Jaitley said.

While parliamentarians stated that employees should have choice of where to invest, Jaitley said, “Theoretically, such freedom is desirable but it is important for the government to achieve policy objectives by the instrumentality of taxation.”

He also clarified that the policy objective is not to get more revenue but to encourage people to join the pension scheme.

Even as he announced rollback of the proposal, the Finance Minister said that the purpose of the proposed reform in the tax regime was 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.

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  1. A
    Aap
    Mar 8, 2016 at 9:05 am
    Good move by centre. Hope they will realise that it is democracy and not dictatorship.
    Reply
    1. H
      Haradhan Mandal
      Mar 8, 2016 at 4:40 pm
      This govt (and its much vaunted 'able ' leader/leadership) is fast losing its 'credibility' or whatever in the eyes of public. That's the positive.
      Reply
      1. I
        Inderpal Singh
        Mar 8, 2016 at 1:59 pm
        Always welcome such reverts :)
        Reply
        1. M
          MyTake
          Mar 8, 2016 at 7:54 am
          Just give an option of Govt. making a certain amount of contribution who ever keeps it to the end.
          Reply
          1. M
            MyTake
            Mar 8, 2016 at 8:43 am
            To encourage savings for retirement so they don't have to become a burden on Govt. Money saved can be used for other productive work that will help the would be worthy daughters themselves to look after their marriage.
            Reply
            1. T
              TIHAEwale
              Mar 8, 2016 at 8:35 am
              Feku56 and his IPL scam patron FM unnecessarily created this issue and now rolled back thus other irresponsible issues in budget got buried. now the opposition should attack more such dubious issues which need to be rolled back
              Reply
              1. A
                ak dev
                Mar 8, 2016 at 10:17 am
                kya bak raha hai birader?
                Reply
                1. A
                  ak dev
                  Mar 8, 2016 at 7:38 am
                  DER SE AAYE DURAST AAYE. But damage has already been done. Modi must shift Jaitley to another ministry.
                  Reply
                  1. A
                    ak dev
                    Mar 8, 2016 at 8:29 am
                    I agree with Thomas on this.
                    Reply
                    1. A
                      akash
                      Mar 9, 2016 at 1:08 am
                      Well done Jaitley
                      Reply
                      1. A
                        ananbejan
                        Mar 8, 2016 at 5:06 pm
                        This was bound to happen as they are going for elections in five states in the near future. This was an attempt to loot and strip ried cl and see people's reactions. After getting trashed they have come to senses. In all the upcoming elections the frustrations and disappointments of middle and lower middle cl, backward cl, OBCs, Minorities, Leftists, Dalits etc should be reflected and verdict should match with Bihar.
                        Reply
                        1. A
                          Anadi
                          Mar 9, 2016 at 9:43 am
                          Finance Minister said that the purpose of the proposed reform in the tax regime was to encourage more number of employees to go for pension security after retirement instead of withdrawing the entire money from the provident fund account. If an employee has to perform the marriage of at least two daughters and construct a house to settle then how can he be forced to buy the annuities after retirement. How can he be forced to give tax if he withdraws his own money for the said purpose. The Govt. should remember the name and meaning of the savings "VABISHYA NIDHI".
                          Reply
                          1. A
                            arun
                            Mar 8, 2016 at 7:56 am
                            Arun Jaitley does not have common sense. He is stupid.
                            Reply
                            1. A
                              arc
                              Mar 8, 2016 at 4:11 pm
                              Chaddis now scared of voters.
                              Reply
                              1. B
                                Barakatullah Amir
                                Mar 8, 2016 at 10:30 am
                                Citizens have no problems with any government as far as government taking care of following: (1) corruption free administration (2) reasonable prices of consumer products (3) harmony, love and care for the citizens regardless of their casts, religions and regions. Majority of politicians calls themselves politicians because they thinks they can do as per their self centered desires and citizens can't make Change. However we are witness citizens have rejected the Congress and selected the BJP. We wish good for each and every citizen of the great India.
                                Reply
                                1. B
                                  Barakatullah Amir
                                  Mar 8, 2016 at 10:29 am
                                  Citizens have no problems with any government as far as government taking care of following: 1) no corruption 2) reasonable prices of consumer products 3) harmony, love and care for the citizens regardless of their casts, religions and regions. Majority of politicians calls themselves politicians because they thinks they can do as per their self centered desires and citizens can't make Change. However we are witness that citizens have rejected the Congress and selected the BJP. We wish good for each and every citizen of the great India.
                                  Reply
                                  1. B
                                    Bhagwati Prasad
                                    Mar 8, 2016 at 8:01 am
                                    Its not because of pressure... This govt hears the people's concerns.
                                    Reply
                                    1. A
                                      Anupam D
                                      Mar 8, 2016 at 12:40 pm
                                      this is really bad face of modi govt , still there is not a freedom of withdraw of tax amount as per employee need.Suppose if someone resigned from job and wants to open his own business and need money still he cant withdraw amount from EPFO and after three years govt will not pay interest on same amount , so what is the point of keeping money with EPFO.Amount will be like peanuts at the retirement age considering the inflation.
                                      Reply
                                      1. D
                                        debraj
                                        Mar 8, 2016 at 12:01 pm
                                        can employee withdraw his PF after resign from company and not working any organization? if yes how much?
                                        Reply
                                        1. d
                                          dharmarajan.v
                                          Mar 8, 2016 at 10:11 am
                                          Finally saner counsel prevailed on the Government. The credit should go to all trade unions including BMS and the labour ministry of the Government and not to Pappu, who may not even know the distinction between EPF and NPS. V. Dharmarajan
                                          Reply
                                          1. S
                                            Sreenivasan
                                            Mar 8, 2016 at 10:27 am
                                            Congratulations for taking a correct decision. It is however difficult to understand that BJP will just let it go as per the wishes of public opinion. They will find out some other way to cut the pockets of people.
                                            Reply
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