New Delhi: The government is considering doing away with income tax (I-T) exemptions on withdrawal of large amounts from EPF accounts, in this year''s budget.

It is understood that the proposal had figured during the trade unions meeting with both prime minister Manmohan Singh and finance minister P Chidambaram. The proposal, if approved by the finance ministry and presented in the union budget, could help EPFO to continue with a higher rate on provident funds and yet provide a ''cushion'' between the interest outgo and the earnings.

About 85 per cent of EPF subscribers have an average balance of over Rs 3,100 as most of them have made early withdrawals mainly for meeting expenditures like house contruction, marriage and major medical bills. A little over 96 per cent of the EPF subscribers will have an average balance of about Rs 75,000.

The proposal has found favour among some trade unions, notably those affiliated to Left parties, who are not averse to the idea. Moreover, the sources said the two benefits — high EPF rates and tax exemptions — cannot go hand-in-hand.

The proposal comes in line with Kelkar Committee report