Jaitley rolls back proposal to tax provident fund
In the face of all round attack, Finance Minister Arun Jaitley today completely rolled back the controversial proposal to tax the employees’ provident fund (EPF) at the time of withdrawal.
Taking the first opportunity available, he made a suo motu statement in the Lok Sabha in which he also announced withdrawal of imposing monetary limit for contribution of employers to provident and superannuation fund of Rs 1.5 lakh for taking tax benefit.
Jaitley, however, left untouched the proposal tax exempt 40 per cent of National Pension Scheme and services provided by EPFO to employees.
“In view of the representations received, the government would like to do comprehensive review of this proposal and therefore I withdraw the proposals in para 138 and 139 on my budget speech. The proposal of 40 per cent exemption given to NPS subscribers at the time of withdrawal remains,” the Minister said.
The Minister had earlier indicated that he would address the concerns on retirement tax when he replies to the debate on Budget 2016-17 in Parliament.
In his Budget for 2016-17, Jaitley had proposed to tax 60 per cent of the corpus of the EPF contributions created after April 1, 2016 at the time of withdrawal. He proposed to exempt these from income tax if the amount was invested in pension annuity scheme.
The proposal came under immediate fire from both employee unions and political parties who said the government was taxing employee when they need the funds most.
The government justified the move saying the attempt was to create a pensioned society and encourage employees to invest their savings in annuities.
A day after the Budget, it had indicated in a statement that it could consider imposing the tax only on the interest part of the corpus.
But today’s decision withdraws the proposal lock-stock-and-barrel.
In his statement, 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 annuity product even if they are not willing to do so.
“The main argument is that the employee should have choice of desire where to invest. Theoretically, such freedom is desirable but it is important for the government to achieve policy objectives by the instrumentality of taxation.
“In the present reform the policy objective is not to get more revenue but to encourage the people to join the pension scheme. There are various suggestions received, which can also achieve the same policy objective of encouraging people to join the pension scheme,” he said in the statement.