Finance Minister Arun Jaitley signalled on Wednesday (02 March) he would roll back a controversial budget proposal to tax pension withdrawals by private sector employees after a backlash from salaried workers.
In Monday's budget, Jaitley proposed taxing lump-sum withdrawals exceeding 40 per cent of an individual's retirement pot in the Employees' Provident Fund (EPF), unless the sum is reinvested in a pension product such as an annuity.
Jaitley's pensions tax plan has sparked fury among India's small but vocal professional class - only around 36 million of the country's 1.3 billion people contribute to the EPF.
Newspapers led front pages on the pensions tax, with the
Hindustan Times splashing "Govt Blinks" and the
Times of India saying "Salaried Class Rages" after a wave of outrage broke across social media.
"This is a draconian act and will be a killer blow to the already tax burdened salaried class," said Vaibhav Aggarwal, a financial analyst who launched an online petition against the changes.
More than 100,000 people signed the petition, leading the finance ministry to partly withdraw its plans on Tuesday. The original proposals included restricting EPF contributions from April.
"There has been some reaction. When the debate comes up in Parliament, I will give the government's response as to what decision we finally take," Jaitley told a meeting with industry chambers. He declined to give more details.
A senior finance ministry official familiar with the matter said the tax on returns from the social security fund could be partly or fully waived. People on lower pay, making up to Rs 15,000 ($220) per month, would be exempted.
The urban middle class, which mostly sided with Prime Minister Narendra Modi in the 2014 election, has shown frustration over rising taxes - the government has taxed away half the windfall of a slump in oil prices.
Monday's budget also hiked taxes on luxury items like cars, while high earners will also pay a higher tax surcharge - helping to fund a raft of measures to aid struggling rural poor.
If implemented, the tax plan could hit millions of employees who pay up to 33 per cent tax on income, forcing them to explore other options to save for their old age.
"It will eat up their retirement savings which could be a double whammy especially in light of high inflation," said Amit Maheshwari, managing partner at consultancy Ashok Maheshwary & Associates.
The EPF, overseen by the Ministry of Labour, invests 95 per cent of its $100 billion under management in state and corporate bonds. It plans a return of 8.8 per cent on investments this year, in line with the long-term average, and pays out monthly pensions to retirees.
(Reuters)
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