FM Jaitley Withdraws Tax On EPF After Backlash

Buckling under pressure, the central government on Tuesday (March 8) announced in Parliament that the proposal to tax 60 per cent of Employees’ Provident Fund (EPF) has been withdrawn. The announcement to tax EPF withdrawals were part of the budget speech of Finance Minister Arun Jaitley on February 29th.

“We propose to withdraw the tax… the tax proposal for NPS scheme has been retained,” Finance Minister Arun Jaitley said in Lok Sabha on Tuesday, adding that “the intention was to encourage a pensioned society”.

In his budget proposal, Jaitley had proposed that 40 per cent of the EPF withdrawals would be tax exempt and the remaining 60 per cent would also get the same treatment provided the amount is invested in pension annuity schemes.

This proposal was criticised by the parties and the unions which said it amounted to forcing employees to invest in pension annuity schemes.

The move, he said, was taken in keeping with feedback received after the move's announcement. The proposal had led to a furore amongst salaried class and was termed as regressive by many.

"A number of representations have been received from a number of people from the society, including from MPs. In view of the representations received, I withdraw the proposal paragraphs 138 and 139 of my Budget speech," FM Jaitley said while making a speech in Parliament.

Point no 138 had mentioned: "In case of superannuation funds and recognized provident funds, including EPF, the norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016." Para 139 of the Budget speech had proposed exempting annuity funds for legal heirs after the death of a pensioner, in cases of pension, superannuation and provident funds.

Reacting to the withdrawal, Tapati Ghose, Partner, Deloitte Haskins & Sells said: "EPF will hence continue to be an attractive investment option with an EEE or exempt-exempt-exempt scheme. The icing on the cake is that the exemption provided for 40 per cent withdrawal from the NPS corpus still remains. The NPS scheme would hence now move from a EET scheme to a partially exempt scheme at the time of withdrawal making this more attractive.”