PF withdrawal partially taxable
New Delhi : There is bad news for middle class which has a tendency to dip into its Provident Fund savings in times of dire need. In the Budget both withdrawals from provident fund and pension upon retirement are partially taxable. According to one estimate, this move will disappoint nearly six crore people.
Currently, withdrawals from Employee Provident Fund are completely exempt from income tax after five years of continuous service, but after April 1, employees will have to pay income tax on 60 per cent of the amount they withdraw from the fund. The remaining 40 per cent will be tax free.
Moreover, the tax on EPF withdrawal will be charged according to the tax slab of employees. Revenue secretary Hasmukh Adhia, however, clarified after the Budget that there would be no tax on the remaining 60 per cent if it is invested in annuity (pension) products for earning regular income.
The finance minister also announced that similar terms on withdrawal will apply to the New Pension Scheme or NPS. This means that withdrawals from the NPS, which come under the ambit of income tax, will now be partially tax free. So, 60 per cent of NPS withdrawal will be taxed, while the remaining will be tax free from April 1, 2016; currently 100 per cent of the sum withdrawn from NPS is taxed.
AMNESTY FOR DEFAULTERS: An Amnesty scheme has been announced for those with disputed tax claims, which would entail a waiver of penalty on amounts up to Rs.10 lakh.
According to Finance Minister Arun Jaitley, 300,000 such cases are pending before appellate authorities, for an amount totalling Rs.5.5 lakh crore. The voluntary compliance scheme would be welcomed by people with concealed income, who wish to come out clean.
TAX COMPLIANCE WINDOW: Jaitley also unveiled a limited tax compliance window from June 1 to September 30 for people to declare their undisclosed incomes, with a tax liability of 45 percent of value, including the surcharge and penalties — together with immunity from scrutiny, enquiry and prosecution.
“I want to give an opportunity to earlier non-complaint to move to the category of compliant. I propose a limited period compliance window for domestic tax payers to declare undisclosed income represented in any form of assets and clear up past transgression by paying tax at 30 per cent, a surcharge at 7.5 per cent and a penalty at 7.5 per cent which is a total of 45 per cent of undisclosed income,” Finance Minister Arun Jaitley said.
“There will be no scrutiny or inquiry regarding tax in these declarations under Income Tax Act or Wealth Tax act and declarations will have immunity from prosecution. Immunity from Beneami transaction has been proposed subject to certain conditions,” he said.
This, however, goes against his warning in the last budget that he will not give any relief after a limited window in 2015.
MINOR REBATE: There is also a minor Rs.3000 rebate, benefiting 20 million assessees. Likewise, those living in rented homes will get a higher exemption of Rs.60000 now, as against Rs.24000 earlier. There is another welcome proposal: To increase the house rent allowance from Rs. 24,000 to Rs.60000.
However, the income tax slabs remain unchanged.
On direct taxation, there are some salutary amendments: Amendment of section 87 A of the Income Tax Act raising the limit from 2 thousand to 5 thousand will help small assesses.
To boost startup, he has given tax exemption to new manufacturing companies. He has reduced the corporate tax to 29% for small enterprise.
The proposal for levy of 100% tax on dividends, even after payment of dividend tax, found few takers. In a way, this would entail triple tax. Because first the profits are taxed in hands of the company; then when dividend is declared, the company pays on the same income dividend distribution tax; then to ask the shareholder to pay further 10% tax is too harsh.