Budget 2016:Loud protests force govt to consider EPF tax.


After Budget proposal to tax 60 per cent of the amount withdrawn from the Employees' Provident Fund, the Union finance ministry will consider suggestions for partially withdrawing it.

A finance ministry statement issued on Tuesday afternoon reiterated that 60 per cent of the amount, accumulated through deposits after April 1, 2016 would be taxed, if withdrawn as a lump sum, but also said Finance Minister Arun Jaitley will have a look at it to assess if the tax would be limited to returns on the corpus and take a decision in due course.


The statement went on to say there would, however, be no tax, if the sum is invested in an annuity. The ministry also clarified there would be no tax on Public Provident Fund (PPF). Also, if the annuity sum is withdrawn by the heirs of the contributor, there would be no tax.

The Employees' Provident Fund, or EPF, is a retirement corpus, in which employees and employers contribute equally over the years of one's employment. Till now, the contributions to EPF provided tax redemptions and withdrawals from it were not taxed either.

According to the proposal, 40 per cent of the total corpus withdrawn at the time of retirement will be exempt from tax. The remaining 60 per cent of the contributions made after 1 April 2016 and returns earned on that would be taxed if withdrawn at one go.

The move, the finance ministry said, was aimed at encouraging private sector employees to go for pension security after retirement instead of withdrawing the entire money from the fund account.


After the finance minister's Budget speech on Monday, there was a spontaneous outflow of outrage, in the media and social media, with pension fund investors claiming that the government was gnawing away their retirement savings. In fact, the Bharatiya Mazdoor Sangh, affiliated with the Rashtriya Swayamsewak Sangh (RSS), also criticised the move.

The ministry, in the clarification, also pointed out that those with an income limit of Rs 15,000 per month would also not be taxed on withdrawing their collected amount. A bulk of the EPF subscribers is in this category.

"Out of around 37 million contributing members of EPF as on today, around 30 million subscribers are in this category. For this category of people, there is not going to be any change in the new dispensation," the statement said.


The Budget proposal had evoked widespread adverse reaction. Suggestions from various quarters started pouring into the ministry, with some asking for only the interest earned on 60 per cent of the withdrawn amount to be taxed - and for the principal to be left alone. By Tuesday morning, there was some confusion, with some sources claiming that this proposal had been accepted by the finance ministry. The finance ministry was abuzz with Employees' Provident Fund Organisation employees meeting Revenue Secretary Hasmukh Adhia. However, the ministry issued a clarification later: now, Finance Minister Arun Jaitley will have a look at it and take a decision in a due course of time.

The Budget has also proposed a ceiling - Rs 1.5 lakh a year, or 12 per cent of the employee's basic pay, whichever is lesser - for employers' contribution to the EPF.

Suggestions from different quarters asked for it to be not implemented. Amit Maheshwari, managing partner, Ashok Maheshwary & Associates, said the clarification has given a partial sigh of relief to EPF subscribers. The move is aimed at bringing parity between EPF and National Pension Scheme (NPS). In the latter, all withdrawals were taxed till recently, making them uncompetitive among investors.

During the Budget speech, Jaitley had said: "I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans. 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."

The Pension Fund and Regulatory Development Authority had requested the finance ministry to have parity between the NPS and the EPF, as far as taxation was concerned. Shiv Sena did not attend the National Democratic Alliance parliamentary part meeting on Tuesday, ostensibly because of a communication gap. It has also demanded a roll back of the government's decision to tax the EPF corpus.

Posted By: chandrika

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