Govt rolls back proposal to tax EPF withdrawals
08 Mar 2016
Amidst strong opposition from salaried taxpayers as well as legislators from both the ruling and opposition parties, the government has decided to withdraw the Budget proposal to make withdrawals from retirement funds of employees taxable.
"In view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal," finance minister Arun Jaitley said in a suo motu statement in the Lok Sabha.
He, however, stated that the 40-per cent exemption given to National Pension Scheme (NPS) subscribers at the time of withdrawal remains. Jaitley is expected to make a detailed statement on the government's position in Parliament and outline the revised proposal.
Jaitley in his Budget for 2016-17 had proposed that 60 per cent of the withdrawal from an employee's contribution to the provident fund made after 1 April this year will be subject to tax. To avoid tax the corpus has to be made into an annuity fund yielding a regular amount of pension.
Defending the tax proposal, the finance minister had earlier stated that the intention of the government was to discourage withdrawals from the corpus of the provident fund and create a bigger corpus that would facilitate move towards a pensioned society.
There is at present no tax on withdrawals from employee provident fund and other superannuation funds. The proposal had come under attack from political parties, employee unions and other stakeholders.
The issue was discussed at a high-level meeting between officials of the Prime Minister's Office (PMO) and the finance ministry on 3 March.
The tax would have applied to superannuation funds and recognised provident funds, including EPF of about 32.6 million EPFO subscribers drawing statutory wages of up to Rs15,000 per month.
Employees Provident Fund Organisation (EPFO) has a total subscriber base of 37 million.