In order to deal with the representation received by the FM Arun Jaitely over the taxation of withdrawal amount of EPF, the government has decided to roll back the proposal made in the Budget 2016. Finally EPF remains tax free.

“In view of the representation received, the government would like to do a comprehensive review of this proposal and therefore I withdraw this proposal,” finance minister Arun Jaitley said in a statement in the Lok Sabha.

 

The Union budget for 2016-17 proposed taxation of 60% of withdrawals from the Employee Provident Fund (EPF) on contributions to be made after April 1, unless the sum is reinvested in pension product such as annuity. In addition, employer’s contribution of over Rs 1.5 lakh would also be ineligible for tax breaks.

 

Due to the criticism on the proposal, the government had to issue a statement clarifying the intent behind the proposal and its intent and its limited impact. The clarification stated that:

• Investment is still tax free
• Interest earned is still tax free
• Whatever money you put in from 1 April 2016, interest on that money is taxed when you exit.

 Even after this clarification, the criticism continued prompting the government to withdraw the tax.

 

The proposal of 40 per cent exemption given to the National Pension Scheme (NPS) subscribers at the time of withdrawal remains, the Finance Minister clarified in his statement.

 

The objective of the reform proposed in the budget that is withdrawn now was “not to get more revenue but to encourage the people to join the Pension Scheme”.

 

The government has also withdrawn the proposal to limit tax-free contribution by the employer to the provident fund of an employee to Rs 1.5 lakh per annum.

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