New Delhi: The government Tuesday promised to consider demands for a partial rollback of the proposal to tax 60 per cent of withdrawals from provident fund and a ceiling on employers’ contributions but made it clear that PPF will continue to be tax exempt.
Earlier in the day, revenue secretary Hashmukh Adhia said only 60 per cent of interest on contributions made after April 1, 2016 will be taxed and that the principal amount of contribution will remain untouched at the time of withdrawal.
However, in the evening a government press note said a proposal to tax only interest and not principal is under consideration.
After that Adhia also said there was a demand being made to this effect and it would be taken into consideration. The press note said the new tax proposal was aimed at taxing only the high salaried individuals totaling about 70 lakh people out of 3.7 crore employee provident fund (EPF) members.
About 3 crore individuals come under the statutory wage limit of `15,000 per month and therefore they will not be affected by the proposed changes. Finance minister in his budget for 2016-17 Monday had proposed that 60 per cent of the withdrawal on contribution to EPF made after April 1 this year will be subject to tax. This would apply to superannuation funds and recognised provident funds including EPF.
He also proposed a monetary limit for contribution of employer in recognised PF and superannuation fund at `1.5 lakh per annum for taking tax benefit.
The proposal came under immediate attack from various employees’ unions including RSS-backed BMS, and political parties who termed it as “an attack on the working class and a clear case of double taxation.”
The finance ministry issued a press note containing a clarification about the proposed changes in the tax treatment of recognised PFs and recognised pension schemes noting that there seems to be lack of understanding about the changes made in the budget on the issue.
“We have received representations today from various sections suggesting that if the amount of 60 per cent of corpus is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount” Adhia said.
“We have also received representations asking for not having any monetary limit on the employer contribution under EPF, because such a limit is not there in NPS. The finance minister would be considering all these suggestions,” the press note said. “We are worried about people blowing off the entire 100 per cent amount on retirement and not investing in pension products. Otherwise, the responsibility comes on government to take care of healthcare,” Adhia added.
Explaining further Adhia said the government proposes to change the provision not to take tax from salaried class, but to help people plan for retirement better. Agencies
