Govt To Consider Partial Rollback Of Tax On Provident Fund Withdrawals

01/03/2016 8:18 PM IST | Updated 15/07/2016 8:26 AM IST
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NEW DELHI, INDIA - FEBRUARY 29: Arun Jaitley, Minister of Finance and Corporate Affairs, during a media interaction after presenting the Finance budget for the year 2016-17 at National Media Centre, on February 29, 2016 in New Delhi, India. Presenting his third Union Budget, Finance Minister Arun Jaitley announced a slew of schemes and income tax exemptions for small tax-payer and the small investors. Aiming to double farmers’ income by 2022, the minister also announced an allocation of nearly Rs. 36,000 crore for the farm sector while raising the agri-credit target to Rs. 9 lakh crore for the next fiscal. Growth of Indian Economy accelerated to 7.6% in 2015-16. (Photo by Vipin Kumar/Hindustan Times via Getty Images)

Under all-round attack, the government today promised to consider demands for a partial rollback of the proposal to tax 60 per cent of withdrawals from provident fund and a ceiling on employers contribution but made it clear that PPF will continue to be tax exempt.

Earlier in the day, Revenue Secretary Hashmukh Adhia said only 60 per cent of interest on contributions made after April 1, 2016 will be taxed and that the principal amount of contribution will remain untouched at the time of withdrawal.

However, in the evening a government press note said a proposal to tax only interest and not principal is under consideration.

After that Adhia also said there was a demand being made to this effect and it would be taken into consideration.

The press note said that the new tax proposal was aimed at taxing only the high salaried individuals totalling about 70 lakh people out of the 3.7 crore employee provident fund (EPF) members. About 3 crore individuals come under the statutory wage limit of Rs 15,000 per month so will not be affected by the proposed changes.

Finance Minister Arun Jaitley in his Budget for 2016-17 yesterday had proposed that 60 per cent of the withdrawal on contribution to employee PF made after April 1 this year will be subject to tax. This would apply to superannuation funds and recognised provident funds including EPF.

He also proposed a monetary limit for contribution of employer in recognised PF and superannuation fund at Rs 1.5 lakh per annum for taking tax benefit.

The proposal came under immediate attack from 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 Finance Ministry issued a press note containing a clarification about the proposed changes in the tax treatment of recognised PFs and recognised pension schemes noting that there seems to be some amount of lack of understanding about the changes made in the Budget on the issue.

"We have received representations today from various sections suggesting that if the amount of 60 per cent of corpus is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount.

"We have also received representations asking for not having any monetary limit on the employer contribution under EPF, because such a limit is not there in NPS. The Finance Minister would be considering all these suggestions and taking a view on it in due course," the press note said.

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