Plan to fix Rs 1.5 L tax-free limit for co contributions also scrapped
Finance Minister Arun Jaitley rolled back a Budget proposal to tax withdrawals from the Employees' Provident Fund (EPF) after the move was met with a hostile response from salaried tax payers. He also scrapped a planned . 1.5 lakh annual limit for tax` free contributions by employers to EPF. However, the National Pension Scheme (NPS) will enjoy tax-free withdrawal of up to 40% as opposed to the full amount being taxed earlier, providing a big boost to the initiative.“In view of the representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposals in para 138 and 139 in my Budget speech,“ the finance minister said in a statement in the Lok Sabha even as he defended the idea behind the proposal. “The proposal of 40% exemption given to NPS subscribers at the time of withdrawal remains.“
These paras dealt with taxation of EPF.
The government's intention behind the EPF tax plan, which was to apply to those with a monthly salary of more than `. 15,000, was to encourage the creation of a pension culture by discouraging the full withdrawal of retirement savings. The proposed tax of 60% on the EPF corpus wouldn't have applied if the subscriber purchased an annuity.
But that explanation didn't seem to convince those who would be affected.
“Our government is pro-worker and after examining the pros and cons, a decision has been taken to withdraw the tax on EPF withdrawal in interest of workers,“ Labour Minister Bandaru Dattatreya said.
There is at present no tax on withdrawals from EPF and other superannuation funds.NPS is, currently, fully taxed on withdrawal under what is called the exempt-exempt-tax (EET) regime. Contributions and income earned are exempt but withdrawals are taxed.
The proposal to tax EPF withdrawals had come under fire almost immediately from all quarters including sections within the ruling party while ministers were flooded with messages on social media to withdraw the proposed tax. A day after the February 29 Budget, the go vernment had even issued a statement clarifying the intent behind the proposal and its limited impact.
The proposal will cheer people but there is a need to encourage people to stay invested in pension funds, said EY tax partner Sonu Iyer.
“The finance minister has on his hands a tough balancing act of motivating people to stay invested in pension funds to ensure socio-economic security on or after retirement and yet gently wean them away from a benign tax regime of exempt-exempt-exempt,“ he said.
Confederation of Indian Industry director general Chandrajit Banerjee said the move was in the right direction even though “EPF tax proposal announced by the government in the Union Budget was not with the intent to raise revenue, but to get individuals to invest in annuity schemes that would then act as a pension plan and social security net for the re tirement“.
Jaitley had proposed in the Budget that only 40% of the corpus can be withdrawn tax free from EPF and NPS to encourage subscribers to invest the balance in annuities yielding regular income.
“In the present reform, the policy objective is not to get more revenue but to encourage the people to join the pension scheme,“ he had said in his statement justifying the levy.
“The purpose of proposed reform 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.“
Jaitley said a number of representations had been received from various sections of the society, including MPs, suggesting that this change would force people to invest in an annuity product against their wishes.
These paras dealt with taxation of EPF.
The government's intention behind the EPF tax plan, which was to apply to those with a monthly salary of more than `. 15,000, was to encourage the creation of a pension culture by discouraging the full withdrawal of retirement savings. The proposed tax of 60% on the EPF corpus wouldn't have applied if the subscriber purchased an annuity.
But that explanation didn't seem to convince those who would be affected.
“Our government is pro-worker and after examining the pros and cons, a decision has been taken to withdraw the tax on EPF withdrawal in interest of workers,“ Labour Minister Bandaru Dattatreya said.
There is at present no tax on withdrawals from EPF and other superannuation funds.NPS is, currently, fully taxed on withdrawal under what is called the exempt-exempt-tax (EET) regime. Contributions and income earned are exempt but withdrawals are taxed.
The proposal to tax EPF withdrawals had come under fire almost immediately from all quarters including sections within the ruling party while ministers were flooded with messages on social media to withdraw the proposed tax. A day after the February 29 Budget, the go vernment had even issued a statement clarifying the intent behind the proposal and its limited impact.
The proposal will cheer people but there is a need to encourage people to stay invested in pension funds, said EY tax partner Sonu Iyer.
“The finance minister has on his hands a tough balancing act of motivating people to stay invested in pension funds to ensure socio-economic security on or after retirement and yet gently wean them away from a benign tax regime of exempt-exempt-exempt,“ he said.
Confederation of Indian Industry director general Chandrajit Banerjee said the move was in the right direction even though “EPF tax proposal announced by the government in the Union Budget was not with the intent to raise revenue, but to get individuals to invest in annuity schemes that would then act as a pension plan and social security net for the re tirement“.
Jaitley had proposed in the Budget that only 40% of the corpus can be withdrawn tax free from EPF and NPS to encourage subscribers to invest the balance in annuities yielding regular income.
“In the present reform, the policy objective is not to get more revenue but to encourage the people to join the pension scheme,“ he had said in his statement justifying the levy.
“The purpose of proposed reform 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.“
Jaitley said a number of representations had been received from various sections of the society, including MPs, suggesting that this change would force people to invest in an annuity product against their wishes.
Company Secretary GAURAV SHARMA+919990694230 Connect on Watts App with Gaurav Email us [email protected] Official Blog Fema India Experts Connect with our Facebook Page:- Click and Like our Page Subscribe our Email updates like other 15,000 Members, Free/Easy/Comfortableway
