Structural changes in EPF to hurt the ‘high income’ bracket

An individual whose basic salary and DA per month amounts to Rs 3,00,000, his employer component will for the year amount to Rs 4.32 lakh. So the additional tax burden for him would be Rs 87,138 at a tax rate of 30.9 per cent.

By: ENS Economic Bureau | New Delhi | Updated: March 3, 2016 12:49 pm
Senior citizens hold placard that has photographs of fellow protestors and PM Manmohan Singh, Congress Chief Sonia Gandhi, Montek Singh Ahluwalia seeking increased pension for senior citizens near Jantar mantar on Friday. Express photo by Oinam Anand. 20 December 2013 The government said that almost 3 crore EPF subscribers out of around 3.7 members fall within the statutory wage limit of Rs 15,000/month. (Source: Express fiel photo by Oinam Anand)

While all income tax proposals in the Budget have been aimed at benefitting the poor and not the rich, the structural changes in EPF, too, seem to be aimed at taxing those in the medium- and high-income bracket.

Watch Video | PF Tax: Making Sense Of Govt’s Clarification

In its clarification issued on Tuesday following the furore over taxing 60 per cent of EPF corpus withdrawal at the time of retirement, the government said that almost 3 crore EPF subscribers out of around 3.7 members fall within the statutory wage limit of Rs 15,000/month and, “for this category … there is not going to be any change…” In another announcement related, the Centre targeted individuals falling in high income bracket as the finance minister proposed to impose tax on employer’s contribution over and above Rs 1.5 lakh. In case of the employee contribution, too, the Centre provides tax benefit on contribution of up to Rs 1.5 lakh.

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“In order to bring parity in the monetary limit for contribution by the employer and the employee, it is proposed to amend the said section and said schedule so as to provide the limit of employer’s contribution to one lakh and fifty thousand rupees, without attracting tax,” the Budget proposed.

Watch Video | Keystrokes: EPF Tax

What it means is that for an individual whose basic salary and DA aggregates to more than Rs 1,04,166 and for whom the employer contribution crosses Rs 12,500 per month (or Rs 1.5 lakh per annum), they will see and additional tax liability. Illustratively, an individual whose basic salary and DA per month amounts to Rs 3,00,000, his employer component will for the year amount to Rs 4.32 lakh. So the additional tax burden for him would be Rs 87,138 at a tax rate of 30.9 per cent.

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