The union government is considering the demand, for a rollback of the ‘Proposal to tax 60% of withdrawals from Public provident fund (PPF)‘ and a maximum on employers contribution, but also made it clear that PPF will continue to be exempt from tax.
This is done in a move to banish the fears of millions of salaried professionals.
In fact, the revenue secretary, Mr. Hashmukh Adhia also announced that only 60 % of interest on contributions made after 1st April 2016, will be taxed and that the principal amount of contribution will remain unaffected at the time of withdrawal.
However, it is strange that the press note issued by government on 1st March, made no mention about taxing only the interest. It asserted that the new tax proposal was aimed at taxing only the high salaried individuals adding up about 70 lac people out of the 3.7 crore employee provident fund (EPF) members. Additionally, as about 3 crore individuals come under the statutory wage limit of Rs 15k per month so will not be affected by the proposed changes.
To give you all a background: The Finance minister Arun Jaitley in his Budget for 2016-17 had proposed that 60 % of the withdrawal on contribution to EPF made after 1st April 2016 will be subject to tax. Moreover, this would also apply to superannuation funds and recognized provident funds including EPF. Jaitely also proposed a monetary limit for the contribution of employer in recognized PF and superannuation fund at Rs 1.5 lac per year for taking tax benefit.
However, the proposal came under immediate criticize from number of employees unions including ‘Bharatiya Mazdoor Sangh’ (BMS), and political parties who claimed the proposal “an attack on the working class and a clear case of double taxation.”
In response, Jaitely issued a press note containing a clarification about the proposed changes in the tax treatment of recognized PFs and recognized pension schemes noting that there was lack of understanding about the changes made in the Budget on the recent issue.
The press note said :
“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”
“It is expected that the employees of private companies will place the remaining 60 per cent of the corpus in annuity, out of which they can get regular pension. When this 60 per cent of the remaining corpus is invested in annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity”
“There is no change in the existing tax treatment of Public Provident Fund (PPF)”
“However, in EPFO, there are about 60 lakh contributing members who have accepted EPF voluntarily and they are highly-paid employees of private sector companies. For this category of people, amount at present can be withdrawn without any tax liability. We are changing this”
Source : India today