It is proposed to provide a uniform tax treatment to the recognised provident fund, national pension system and superannuation fund, Finance Minister Arun Jaitley said while presenting Union Budget 2016-17 in Lok Sabha on Monday.
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On Tuesday, NDTV had reported that the government may consider its decision to tax EPF withdrawal and might even opt for a partial roll back.
Commenting on the petition, Preethi Herman, Country Lead of Change.org said, “Taxing a huge chunk of that fund will affect crores of people”.
The press note said the goal of this reform of making the change in tax regime is to encourage more number of private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund account. “There is no 40% limit on PPF”.
Besides, 40 per cent of the pension wealth under NPS will be exempted from tax.
The government also says that the tax is unlikely to have an impact on most provident fund beneficiaries as the numbers show that around 3 crore of the 3.7 crore provident fund subscribers earn less than the statutory wage limits of Rs 15,000 which bring them compulsorily under the provident fund net. “For this category of people, there is not going to be any change in the new dispensation”, the finance ministry said.
Continuing to face flak for proposing a tax on employee provident fund withdrawals, Jaitley today said he will spell out the final decision on the matter when he replies to the debate on Budget in Parliament.
While explaining the government’s stand, he said, “We are anxious about people blowing off the entire 100% amount on retirement and not investing in pension products”. “This is not a revenue mobilisation exercise”, he added.
As a justification for this, the government said that its aim was to create a pensioned society. “However, if he chooses not to put any amount in Annuity product the tax would not be charged on 40%”, it said. The remaining 60 per cent would have to be parked in annuities – which typically offer very low returns.
Then again, the insistence that 60% of retirement savings would qualify to be tax-exempt only if invested in annuities has no rational basis. They don’t buy Mr Jaitley’s objective of trying to push them towards annuity plans where you get a regular stream of income after retirement, and the National Pension Scheme. It is administered by the Employees’ Provident Fund Organisation (EPFO) whose highest body is the Central Board of Trustees, with representation from the government, employers and employees.
The Budget proposal to levy an additional 10 percent dividend distribution tax for individuals is likely to hurt cash-rich promoters of corporate India, according to Business Standard. Taxing PF means double taxation.
Tax should be imposed on new income. “Perhaps the government may change the relevant provisions”, Neha Malhotra, executive director of Nangia and Company, an worldwide tax advisory and accounting firm, told IANS. “I will address it during the Budget discussion”, Jaitley said.
So far EFP withdrawal have been free from tax exemptions in last five years.
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The government clarified by saying that 40 per cent of the whole amount withdrawn at the time of retirement will be tax free.
