‘Bad phrasing in budget speech caused confusion on EPF tax proposal’
Finance minister Arun Jaitley had announced in his Budget that 40% of an individual’s accumulated corpus in the EPF and NPS scheme would not be taxed at the time of withdrawal.
Union revenue secretary Hasmukh Adhia has defended the proposal to tax Employee’s Provident Fund withdrawals, saying the intention was only to encourage investment in pension schemes, but the phrasing in the Budget speech caused the confusion.
“The entire thing happened not because of any illogicality in the step but due to the communication gap,” Adhia said on Saturday at an interaction on Budget at the Ahmedabad Management Association in the city.
“In the budget we try to concise the speech by minimising the words. If it goes beyond 1 hour and 30 minutes it becomes boring. When we were reducing the number of words and when it came to this paragraph we chopped it off and that is how the problem occurred,” Adhia said.
“If we had paraphrased this paragraph differently then less confusion would have been created.”
The government has in fact continued with the policy of exempting EPF at all three stages (entry, during the scheme and exit), he argued.
“We have not said that we will be taxing remaining 60% (of withdrawn EPF). The first 40% is totally exempt. Regarding remaining 60% the expectation is you should put it in some pension scheme....To encourage people to put their money in pension products we have said if you put the remaining 60% in annuity scheme it will not be taxed....original corpus after your death will go to your heir and that will also be tax exempt,” he said.
“So in a way we have continued exempt, exempt, exempt scheme, but with a time period,” he said.
“We do not wish to get anything out of this, it is not a revenue mobilisation effort,” Adiha said.
“The finance minister has already said that he will make the announcement on it in a very short time (in Parliament)”, he noted.
Finance minister Arun Jaitley had announced in his budget last month that 40% of an individual’s accumulated corpus in the Employees’ Provident Fund (EPF) and National Pension System (NPS) scheme would not be taxed at the time of withdrawal.
This was taken to mean that the remaining 60% was taxable. Withdrawals from EPF, or retirement savings of private sector employees, are now entirely tax-free.
A day after the budget, the government had hinted that it was open to modifying the rule to tax only the interest earned on 60% of the EPF contributions made after April 1, 2016.
Read | Controversial EPF tax may be deferred after PM Modi steps in