Employees’ Unions Criticise Budget Plan to Tax Provident Fund

Provident Fund is the only social security system for Indian workers and employees. From now on, withdrawals will be liable to tax. credit: Shome Basu

Provident Fund is the only social security system for Indian workers and employees. From now on, withdrawals will be liable to tax. credit: Shome Basu

New Delhi: The proposal in the budget to impose a tax on 60% of the corpus of an employee at the time of withdrawal of his Employee Provident Fund has come in for a scathing attack from various workers’ unions who have termed it a gross injustice.

Talking to The Wire, senior Communist Party of India leader and general secretary of the All India Trade Union Congress Gurudas Dasgupta said the move was little more than a case of double taxation. “It is an attack on the savings of the people and we will oppose it. I plan to speak to the trade unions and firming up the next course of action,’’ said the former Member of Parliament.

Finance Minister Arun Jaitley’s plan to tax a part of Employee Provident Fund (EPF) withdrawals from April 1, 2016, also drew strong condemnation from Right-affiliated trade unions.

Virjesh Upadhyaya, general secretary of the Bharatiya Mazdoor Sangh, said: “What has happened is very wrong. How can they impose such double taxation? When the gross salary has already been taxed, how can a component of it which has been set aside as a saving be taxed again?”

Declaring that BMS would take up the matter with the Government, Upadhyaya said if need be the BMS would also come out on the streets to protest against this “gross injustice” to the nearly 6 crore EPF account holders.

Dr. G. Sanjeeva Reddy, president of the Indian National Trade Union Congress, said the government had been unable to ensure minimum wages to the workers and instead had resorted to taxing their savings in a most unjustified manner. “To tax PF withdrawal is a criminal act and we will protest against it.”

M K Gandhi, president of the All India Tax Advocates Forum, however, had a different opinion. He said the tax on the EPF withdrawals would not amount to double taxation since a tax rebate is received by the employees on their provident fund deductions every year.

While explaining the rationale behind imposing this tax, the explanatory note in the Budget document states that “to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 % of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax.”

The government’s proposal brings all the pension schemes at par with each other and makes the Employee Provident Fund (EFP) and National Pension Scheme (NPS) withdrawals on retirement partially taxable.

The EPF had until now followed an exempt-exempt-exempt (EEE) taxation structure which meant that there was to be no tax on investment, on interest accrued and on withdrawal. On the other hand, in the case of NPS, the entire corpus was earlier taxed on withdrawal. The Economic Survey this year had suggested a shift to the EET regime, which meant taxing the withdrawals while exempting the investment and interest accrued. The move to tax the EPF withdrawals also appears to be a step in the same direction.

Categories: Economy

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  • Rajesh Kumar

    To tax PF withdrawal is a criminal act and tax payers should protest against it.

    In addition to not passing on the benefit of a fall in the world prices of Oil, the Govt is burdening us with various indirect taxes in the form of cesses. They are doing nothing to bring in more people into the tax net. Only 2 to 3 percent of Indians pay any income tax at all. Tax on withdrawal of PF is another sadistic move by the Govt on the working class which is the last straw. The people should open up their eyes to the non-performance of this Govt.

  • Samir Majhi

    Instead of making the NPS better by not taxing on withdrawal, they’re making EPF worse by taxing the withdrawal. My dear govt, you can’t force a bad product down the throats of people by making an existing good product worse. Prepare for a mass exodus from EPF. Now instead of 12% of basic, you’ll see Rs 800 coming in every month.