The government rolled back the proposal to tax withdrawals from the Employees’ Provident Fund (EPF), on legitimate concerns of stakeholders that such proposal would take away the flexibility from retirement planning, Minister of State for Finance Jayant Sinha said on Tuesday.
“… we realised that other than looking at something that would guide people towards retirement income, it actually resulted in situation where lots of people felt 60 per cent of the corpus of EPF that was restricted in terms of withdrawal was taking flexibility away from their own retirement plan which was a very legitimate concern that has come up,” Sinha said at an event organised by Ficci.
Facing all round criticism, finance minister Arun Jaitley on Tuesday rolled back the proposal to tax the EPF at the time of withdrawal. On February 29, the Union Budget 2016-17 had proposed a tax on 60 per cent of the EPF corpus at the time of withdrawal. The proposal to tax EPF corpus has faced criticism from across political parties, trade unions including the RSS-affiliated Bharatiya Mazdoor Sangh and members of the Central Board of Trustees of the EPFO.
In clarifications that finance ministry issued after the Budget on March 1, the government said this tax will not hit 3 crore EPF subscribers who earned salary up to Rs 15,000 per month and that the tax was aimed at 70 lakh high income EPF subscribers earning more than this amount. The ministry also said that if the EPF corpus is invested in annuity at the time of withdrawal, it will not attract any tax.
Jaitley said on Tuesday that the objective of proposal to tax EPF at time of withdrawal was to strengthen the pension system in this country and bring EPF and National Pension System (NPS) on par. The finance minister has retained the tax exemption that will be provided on withdrawal of up to 40 per cent of the NPS corpus. So far, entire corpus of NPS has been subject to tax at the time of withdrawal. The Budget proposed identical tax treatment on EPF and NPS. With Jaitley’s statement in Lok Sabha rolling back the withdrawal tax on EPF, the scheme will retain a clear edge over NPS. Sinha added that the Budget seeks to rejuvenate the rural economy, reform public sector banks, transform the tax ecosystem, massively increase public investment and upgrade the social security system. He noted that the Budget achieved a fine balance between fiscal rectitude and economic growth imperatives and between good politics and good economics