Govt rolls back budget proposal to tax provident fund withdrawals

Hindustan Times | By, New Delhi
Mar 08, 2016 07:41 PM IST

Amid mounting opposition from labour unions and the salaried class, the government on Tuesday withdrew the controversial budget proposal to tax provident fund withdrawals.

The government rolled back on Tuesday a controversial budget proposal to tax employees’ provident fund (EPF) withdrawals, caving in to mounting opposition by labour unions, the salaried class and rival political parties.

Tax proposal for NPS scheme has been retained(PTI)
Tax proposal for NPS scheme has been retained(PTI)

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

In the budget presented by Jaitley on February 29, the government announced 40% of an individual’s accumulated corpus in EPF and National Pension System (NPS) schemes would not be taxed at the time of withdrawal.

This was taken to mean that the remaining 60% of the EPF corpus was taxable.

Read more: Controversial EPF tax may be deferred after PM Modi steps in

The budget also proposed a monetary ceiling of Rs 1.5 lakh on employers’ contribution to PF accounts.

This has also been withdrawn.

Jaitley, however, said the proposal to keep 40% of withdrawals from the NPS accounts tax-free stayed unchanged.

Withdrawal from the EPF was entirely tax-free and the budget proposal had triggered howls of protest from subscribers and labour unions that termed it anti-worker. The

EPF is India’s biggest social security scheme with 60 million workers depending on it for post-retirement savings.

Read more: Tax on EPF withdrawal: People might just stop investing in properties

The Congress party claimed credit for the rollback.

“My pressure worked... I had warned the government against suppressing the salaried class. It is a good decision,” Congress vice-president Rahul Gandhi told reporters outside the House.

“Der aye durust aye (better late than never). The attempt to tax the safety net of millions of hard working middle-class people was morally wrong and shows this government’s anti-people mindset,” Gandhi said.

“Whenever somebody is being oppressed wrongly or acted against wrongly or victimised, I tend to try to help those people. I felt that salaried people, middle-class people were being hurt by the government, so I decided to put some pressure on the government and I am very happy that they have got some relief,” the Congress vice-president said.

The finance minister said it was never the government’s intent to earn extra revenue from the move to tax EPF withdrawals.

“The main argument is that the employee should have choice of desire where to invest,” the finance minister said. “Theoretically, such freedom is desirable but it is important for the government to achieve policy objectives by the instrumentality of taxation.”

Jaitley said “in the present reform the policy objective is not to get more revenue but to encourage people to join the pension scheme. There are various suggestions received, which can also achieve the same policy objective of encouraging people to join the pension scheme.”

Trade unions, including the RSS-affiliated Bharatiya Mazdoor Sangh, had slammed the government’s move to tax provident fund withdrawals.

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