However, the withdrawn amount would be totally tax exempt if it is re-invested in annuity pension products.
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There was a lot of backlash from the public at large and the Opposition, given that the tax on EPF withdrawal would have affected retirees. “The EEE (tax exempt at the time of contribution, tax exempt on returns and tax exempt on withdrawals) scheme will continue for PPF”, he said. For this category of people, there is not going to be any change in the new dispensation.
As apprehensions grew over the proposal, Minsiter of Finance (MoS) Jayant Sinha said, we have noted concerns about changes in tax treatment for EPF/PPF/NPS.In any case, please recognize that we are only talking about prospective changes.
Announcing measures for moving towards a pensioned society, Jaitley said, “Pension schemes offer financial protection to senior citizens”.
“What we are saying is that such employee can withdraw without tax liability provided he contributes 60% in annuity product so that pension security can be created for him according to his earning level”.
The minister also said that the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases.
Finance Minister Arun Jaitley’s Budget announcement had drawn outrage from trade unions and middle-class salaried workers on Monday, after he proposed to tax 60% of the provident fund corpus at the time of withdrawal. However, its assets under management are Rs 1.10 lakh crore, while EPFO has over Rs 10 lakh crore under its administrative control. PPF on withdrawal will continue to be out of the tax ambit. The remaining Rs 30 lakh would have to be used for buying annuities unless the member is willing to shell out Rs 9 lakh in taxes.
“PF accumulation are not generated or new income”, BMS General Secretary Virjesh Upadhyay said.
Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.
“He said BMS would write to Prime Minister Narendra Modi and Jaitley to protest against these proposals and demand to roll those back”. The FM has made Employee Provident Fund (EFP) and National Pension Scheme (NPS) withdrawals on retirement partially taxable in the Budget.
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“To remove the anomalies and inconsistencies in the taxation of the NPS, the Government has given partial relief by giving exemption of 40 per cent at the time of withdrawal in order to encourage retirement savings”, Nangia & Co Executive Director Neha Malhotra said.
