PM steps in, asks FM to review the tax proposal; the decision will be announced later this month
New Delhi : The Government on Saturday dropped hints to roll back the income tax on withdrawals from the Employees Provident Fund (EPF) proposed in the next fiscal budget and the announcement may come as early as on March 15 or 16 when the first part of Parliament”s budget session ends.
Sources said Prime Minister Modi has asked Finance Minister Arun Jaitley to review the tax proposal he unveiled in the budget presented on February 29. Jaitley has himself assured the Lok Sabha early this week that a decision on tax on the EPF withdrawals, proposed for the first time, will be announced when he replies to the budget debate later this month.
The proposal envisages tax on 60% of the EPF deposit on withdrawal as per the income-tax slab of the person but no tax if the amount is invested in a pension scheme. There is no tax on withdrawal of 40% of the deposit.
A Finance Ministry spokesman clarified that what Jaitley had offered is not taxation but an incentive to have life-long monthly pension instead of the retiring employee spends away all his savings in the EPF and then become dependent on others for survival. He can handle the immediate needs of funds from 40% EPF not taxable at all, he said. He also clarified that the proposal does not apply to the Public Provident Fund (PPF) in which people invest for savings and tax benefits.
He also scotched media speculation that the proposal will hit over 4 crore employees, pointing out that some 3 crore employees whose monthly salary is up to Rs 15,000 are fully exempted. The EPF is compulsory for only this category of the employees, while it is voluntary in case of about 60 lakh employees in the higher salary bracket earning more than Rs 15,000 per month. They opt for voluntary deduction of EPF to enjoy benefit of an equal amount deposited in their account by the employers.
Sources in the ministry said the government may also withdraw a new provision added by Jaitley to put a ceiling of Rs 1.5 lakh on the employer”s contribution and continue with the existing provision of the employer contributing not more than 12% of the salary. Jaitley”s proposal is to allow the employer contribute 12% of the salary but it should not exceed Rs 1.5 lakh.
