Economy

Arun Jaitley Rolls Back Controversial EPF Tax Proposal

Arun Jaitley. Credit: Lok Sabha TV

Arun Jaitley. Credit: Lok Sabha TV

New Delhi: Facing an all-round attack, Finance Minister Arun Jaitley today withdrew his Budget proposal to tax withdrawals from the employees’ provident fund (EPF).

Jaitley had in his Budget for 2016-17 proposed to tax withdrawals of 60% of accumulations in the EPF after April 1, 2016.

This was criticised by all employees unions as well as political parties.

“In view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal,” Jaitley said in a suo motu statement in Lok Sabha.

He however stated that the 40% exemption given to National Pension Scheme subscribers at the time of withdrawal remains.

In his Budget proposal, Jaitley had proposed that 40% of the EPF withdrawals would be tax exempt and the remaining 60% would also get the same treatment provided the amount is invested in pension annuity schemes. This proposal was criticised by political parties and the unions, which said it amounted to forcing employees to invest in such schemes.

“Employees should have the choice of where to invest. Theoretically such freedom is desirable, but it is important the government to achieve policy objective by instrumentality of taxation. In the present form, the policy objective is not to get more revenue but to encourage people to join the pension scheme,” Jaitley said explaining the rationale for the taxation proposal.

The proposal would not have impacted 3.26 crore Employees Provident Fund Organisation (EPFO) subscribers drawing a statutory wage of up to 15,000 rupees per month. EPFO has a total subscriber base of 3.7 crore.

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  • S.Thiyagarajan

    The retirement tax is the most senseless tax proposal ever made in independent India only rivaled by some outrageous tax proposals during British rule. Arun Jaitley is unabashedly pro-industry and he does not hesitate to lower the corporate tax every year, but he cannot tolerate the poor govt.servnts taking home the long saved Provident fund amount in full. The proposal to tax the 60% of it as income for the year and tax it as per slab is not only atrocious but also breaching the trust reposed by the employees when they joined the scheme. The FM loudly proclaims that retrospective tax for the industry is a big mistake, but this proposal also is sort of retrospective tax. The PPF which is only of 15 years duration, is not taxed but the EPF which is of much longer duration is being taxed. The lame, half-hearted and freshly minted excuse that this will make people to join the NPS is childish to say the least. The NPS should be made intrinsically attractive instead of making it comparitively attractive. It goes to show what sort of financial advisors, including the CEA, the finance ministry is depending on. This single tax move would have alienated the entire backbone of NDA support base, the salaried middle class besides creating a social unrest. The advisors either dont know the ground reality or are misleading the minister wantonly to bring discredit to the NDA. Good sense prevailed in the end and Jaitley has realised his folly and gamely withdrew the retirement tax completely. Mr. FM, dont be let down the garden path by your out-of sync with reality advisors. Be cautious Mr.FM