Budget 2016: 60% of EPF deposits to be taxed on withdrawal after April 1

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.

By: PTI | New Delhi | Updated: March 3, 2016 1:00 pm
pension-759 Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.

Breaking from the long-held practice of exemption at all stages, the Budget for 2016-17 seeks to impose a retirement tax at the time of final withdrawal on 60 per cent of contributions made after April 1, 2016, to EPF and other schemes.

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.

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

In order to bring greater parity in tax treatment of different types of pension plans, it is proposed that the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 per cent of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax, said Budget Memorandum.

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It is proposed to provide that any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40 per cent of the annuity, shall be chargeable to tax.

Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.

Watch Video | The Big Picture Of Arun Jaitley’s Budget 2016

Announcing measures for moving towards a pensioned society, Finance Minister Arun Jaitley said, “Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans.”

He said, “I propose to make withdrawal up to 40 per cent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. 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 April 1, 2016.”

Watch Video | How Will The Proposed PF Tax Affect You

The minister also said that the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases.

He proposed a monetary limit for contribution of employer in recognised Provident and Superannuation Fund of Rs 1.5 lakh per annum for taking tax benefit.

The minister also proposed to exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees.

Government has also proposed that 14 per cent service tax on services provided by Employees’ Provident Fund Organisation (EPFO) to employees, being exempted, with effect April, 2016.

Watch Video | Keystrokes: EPF Tax

The budget has also proposed to increase the threshold for deducting tax deducted at source (TDS) on payment of accumulated balance due to an employee in EPF Rs 50,000 from existing Rs 30,000.

Last year budget had provided that the members of private provident fund trusts will not have to pay tax on pre-mature withdrawals provided the amount is either less than Rs 30,000 or their tax liability is nil even after including the withdrawn sum to their income.

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  1. U
    uday
    Feb 29, 2016 at 2:58 pm
    No tax on lawyer!!!!!!!!!!!!!! This is a big slap on ry-cl people.
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    1. P
      PS Azurite
      Mar 1, 2016 at 1:35 am
      Why they target only working cl and all the business people cheat or benefit from govt.
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      1. Gaurav Jagota
        Feb 29, 2016 at 3:47 pm
        Why shall I put my money in a lock for 30 years if I have to pay Tax on that. I'll use it in my way. Most importantly we are not going to get good nice pension as our Govt/PSU employees get. e.g. When I'll retire in 2058 I will get only 2700/- odd rupees per month as pension. What will I do with that? I am ready to pay tax as Govt wants but it should also set same standards of pension and health services across all sectors. Why only the Govt sector employees enjoy all these facilities on the expense on non-govt ried cl? I pay all kind of direct or indirect tax... but than I shall get good health facilities, good Govt schools(most of the politicians will not agree to that) and free p through the toll gates.
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          pkgupta
          Mar 1, 2016 at 1:58 am
          Taxation on retirement benefits is a torture to senior citizens to whom every government has given concessions in the past. In the era of nuclear families, where children are not taking care of parents, this step is not at all in the favour of society.
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            pkgupta
            Mar 1, 2016 at 2:05 am
            This government is increasing tax burden on aam aadmi every year. Last year service tax increased from 12.5% to 14.5 %. Now further cess @0.5 % has been imposed. Originally, service tax was imposed only on about 10 services which has been extended to every thing used by common man like train reservation, insurance etc. What actually govt. wants? Instead they shall reduce expenditure by themselves. Ministers and MPs are enjoing plane jouneys, five star hotels, hi-fi offices and taxing services used by common man. They shall study the working and life style of Honable Abdul Kalam.
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