Finance Minister Arun Jaitley's Budget 2016 proposes to tax a big chunk
of Employee Provident Fund (EPF) withdrawals from April 1, 2016, a move
that will disappoint nearly six crore people.
Currently, withdrawals from Employee Provident Fund are completely exempt from income tax after five years of continuous service, but after April 1, 2016 employees will have to pay income tax on 60 % of the amount they withdraw from the fund.
The tax on EPF withdrawal will be charged according to tax slab of employees
The remaining 40 % will be tax free
Explaining the move to tax PF withdrawal, Minister of State for Finance Jayant Sinha told NDTV, "If you take out the 60 per cent and want to consume it in one year, you will have to pay tax because effectively you are defeating the purpose of the pension scheme." Congress lawmaker Shashi Tharoor countered the minister. "People don't take out PF money to put it into an annuity, they take it out because they need it," he said.
Analysts said that this step is aimed at encouraging the salaried to remain invested in the retirement fund and later invest the kitty in annuity (pension) products to earn regular income.
The Employees' Provident Fund Organisation or EPFO manages a corpus of around Rs. 6.5 lakh crore with a subscribers base of around six crore.
The finance minister also announced that similar terms on withdrawal will apply to the New Pension Scheme or NPS. This means that withdrawals from the NPS, which come under the ambit of income tax, will now be partially tax free. So, 60 per cent of NPS withdrawal will be taxed, while the remaining will be tax free from April 1, 2016; currently 100 per cent of the sum withdrawn from NPS is taxed.
Only interest accrued on 60% contribution to EPF after April 1, 2016 will be taxed
Seeking to dispel fears of the salaried class, the NDA Government Tuesday March 01,2016 said PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.
In an interview to PTI, Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries. The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016.
Currently, withdrawals from Employee Provident Fund are completely exempt from income tax after five years of continuous service, but after April 1, 2016 employees will have to pay income tax on 60 % of the amount they withdraw from the fund.
The tax on EPF withdrawal will be charged according to tax slab of employees
The remaining 40 % will be tax free
Explaining the move to tax PF withdrawal, Minister of State for Finance Jayant Sinha told NDTV, "If you take out the 60 per cent and want to consume it in one year, you will have to pay tax because effectively you are defeating the purpose of the pension scheme." Congress lawmaker Shashi Tharoor countered the minister. "People don't take out PF money to put it into an annuity, they take it out because they need it," he said.
Analysts said that this step is aimed at encouraging the salaried to remain invested in the retirement fund and later invest the kitty in annuity (pension) products to earn regular income.
The Employees' Provident Fund Organisation or EPFO manages a corpus of around Rs. 6.5 lakh crore with a subscribers base of around six crore.
The finance minister also announced that similar terms on withdrawal will apply to the New Pension Scheme or NPS. This means that withdrawals from the NPS, which come under the ambit of income tax, will now be partially tax free. So, 60 per cent of NPS withdrawal will be taxed, while the remaining will be tax free from April 1, 2016; currently 100 per cent of the sum withdrawn from NPS is taxed.
Only interest accrued on 60% contribution to EPF after April 1, 2016 will be taxed
Seeking to dispel fears of the salaried class, the NDA Government Tuesday March 01,2016 said PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.
In an interview to PTI, Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries. The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016.
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