Jaitley withdraws Budget proposal to tax EPF money
New Delhi: After a nationwide outrage over the Budget proposal to tax 60 per cent of provident fund withdrawal, Finance Minister Arun Jaitley on Tuesday withdrew the plan tax on workers' hard-earned savings.
In his statement to lawmakers in Lok Sabha, Jaitley said the government will carry out a "comprehensive review" on the contentious issue of taxing EPF money.
Jaitley's Budget proposal sparked a barrage of protests from the salaried class, workers and political parties.
"In view of the representations received, the government would like to do comprehensive review of this proposal and therefore I withdraw the proposals made in Para-138 and 139 of my Budget speech," the finance minister said in Lok Sabha.
"The proposal of 40 per cent exemption given to NPS subscribers at the time of withdrawal remains," he added.
On Thursday, Bloomberg TV India reported that Modi reviewed the contentious issue with senior ministers even as Opposition sharpened their attack on the government over the issue.
Last week, PM discussed the EPF tax issue with senior cabinet ministers in Parliament and discussed the government stance that will be taken when it comes up for debate in the House.
Opposition parties including Congress have demanded roll back of the tax on EPF withdrawal.
Earlier, Minister of State for Finance Jayant Sinha tweeted: “Understand the pain and anguish being felt about the EPF tax. Will evaluate the inputs received on EPF and respond.”
Sinha admitted that pension plans around the world provide tax exemptions.
Congress Vice President Rahul Gandhi demanded that Modi should roll back the proposal for taxing employee provident fund withdrawals.
"EPF is the safety net of the employees and imposing a tax on this is wrong. I will urge the Prime Minister to announce... that the tax will be rolled back," Gandhi said.
He said that Modi should instill confidence in the employees and voters by withdrawing the proposal.
The total portfolio under the pension and provident fund scheme is estimated to be around Rs 6.5 lakh crore.
Finance Minister Arun Jaitley on Wednesday told lawmakers in Parliament that the issue related to the proposal to tax EPF contribution will be addressed during the discussion on Budget.
Facing heat over the tax on EPF withdrawal, senior government officials on 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’ contribution but made it clear that PPF will continue to be tax exempt.
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.
The government has clarified that the proposal was to tax only interest and not principal is under consideration.
The press note said that the new tax proposal was aimed at taxing only the high salaried individuals totalling about 70 lakh people out of the 3.7 crore employee provident fund (EPF) members. About 3 crore individuals come under the statutory wage limit of Rs 15,000 per month so will not be affected by the proposed changes.
In his Budget, Jaitley proposed that 60 per cent of the withdrawal on contribution to employee PF 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 Rs 1.5 lakh per annum for taking tax benefit.
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 some amount of 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.
"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 and taking a view on it in due course," the press note said.