Final decision on partial taxation of EPF after parliament debates on the budget

Jaitley said the move was aimed at high-salaried class and not the overwhelming section of 3.7 crore EPF members
Final decision on partial taxation of EPF after parliament debates on the budget
Final decision on partial taxation of EPF after parliament debates on the budget
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Facing flak for proposing a tax on employee provident fund withdrawals, Indian Finance Minister Arun Jaitley on Wednesday said he will spell out the final decision on the matter when he replies to the debate on Budget in Parliament.


After Budget 2016-17 proposed taxing 60 per cent of the withdrawal from Employee Provident Fund (EPF) on contributions to be made afterApril 1, the government on Tuesday hinted of a partial rollback.

At a meeting organised by industry chambers on Budget provisions, Jaitley said the move was aimed at high-salaried class and not the overwhelming section of 3.7 crore EPF members.

"The revenue department had considered various aspects of the National Pension Scheme and Employee Provident Fund Organisation (EPFO). Their intention is not revenue raising, that was not the principal intention," he said.

The intention behind the move is to make India more insured and pensioned society as the Budget provision provides for no tax on EPF withdrawal if it is invested in pension-based annuities.

"The EPFO has about 3.7 crore members of which about 3 crore members are those in the earning category of Rs 15,000 and below (statutory wages). For them there is no change," he said. "It is only those private sector employees who have just joined that this will impact them." 

With the proposal being attacked by various employees unions including RSS-backed BMS and political parties who termed it as "an attack on the working class and a clear case of double taxation," the government on Tuesday said it was to limit the tax only to the interest accrued.

"Now there has been some reactions. When the debate comes up in Parliament I will give the government's response as to what decision we finally take in this matter," he said.

Jaitley said the objective behind the proposal was that no tax is levied on 40 per cent of the withdrawal which can be used for meeting retirement commitments.

The balance, he said, can be converted into annuity and the person would get a regular pension and he does not pay tax.

"There is also a change in the law that when inheritance comes in there is no tax payable," he said. "This was intended to incentivise people in the private sector also to use it as a kind of pension fund and to disincentive those who otherwise would indulge in consumption of that fund this move was made.

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