For millions of wage-earning Indians, the entire budget exercise of finance minister Arun Jaitley has boiled down to an angry, cryptic phrase on social media: #RollBackEPF.
That’s because the government has just broken into your retirement savings.
Until now, any payment received from the employee provident fund (EPF) was exempt from tax. Such funds could be drawn any time – upon quitting a job, between jobs or on superannuation, without any punitive taxation.
But come April and interest on a large portion of your EPF corpus will be taxed, unless the money is invested in annuities or locked-up funds that provide an income for life.
Why so? Because the government wants to bring parity in the tax structures of all retirement funds. It also wants people to invest in the National Pension Scheme (NPS), a market-linked, more-risky fund modelled on the retirement plan many western economies follow.
But taxing retirals in India is a betrayal of the country’s already tax-burdened salaried class.
In India, where social security is virtually non-existent, retirement savings are the backbone of the salaried class’ most valued asset. So, to tax an employee’s lifetime’s savings, squirrelled away in the hope of a golden retirement, is not only dangerous but also ethically wrong.
As it is, provident fund interests barely cover the rise in real inflation. Going by Jaitley’s proposal, you may not be guaranteed a comfortable retired life even if you sock away a million dollars in retirement savings.
Also, people in a middle income country such as India use provident funds for a variety of exigencies – children’s education, weddings, health crises, to buy a house, etc. Forcing people to invest in annuities alone is also unfair when other higher-yield instruments are available.
There could be a more technical argument against the EPF tax.
Some experts point out EPF accumulation is not a new income on which tax can be levied. EPF is deducted from salary on which tax has already been paid, which means Jaitley’s proposal could be violating double taxation laws.
For a segment of the population that pays its taxes honestly, drives the engine of growth and many of who voted for this government in the hope of realising their aspirations, Jaitley’s move comes as a new millstone around their necks.
It’s a political hot potato Jaitley can’t wish away.