Jaitley yet to decide on taxing your PF: Everything you need to know
Adding further confusion over tax treatment of provident fund contributions proposed in the Union Budget, the finance ministry on Tuesday said a final view was yet to be taken on the subject.Updated: Mar 02, 2016, 12:18 IST
Adding further confusion over tax treatment of provident fund contributions proposed in the Union Budget, the finance ministry on Tuesday said a final view was yet to be taken on the subject.
No tax if PF funds are invested in annuity funds
In a statement, the ministry said on members of the provident fund who invest their withdrawals in annuity funds, no tax will be levied. If not, 60% of the money withdrawn will be taxed. Thus far, it is clear.
Confusion still persists on whether money withdrawn will be taxed
But what has created confusion is over whether only the interest component will be taxed upon withdrawal or the whole corpus itself built after April 1 this year. Revenue Secretary Hasmukh Adhia had alluded that only interest will be taxed and not the corpus.
But a statement thereafter suggests no firm decision has been taken as yet.
“We have received representations today from various sections suggesting if the amount of 60% of corpus is not invested in annuity products, tax should be levied only on the accumulated returns of the corpus and not on the contributed amount,” it said.
“We have also received representations asking for not having any monetary limit on employer contribution under EPF because such limit is not there in NPS. The Finance Minister would be considering these suggestions and taking a view on it in due course.”
Salaried class is livid
The salaried class was shocked by Monday’s budget proposal presented by Finance Minister Arun Jaitley that seemed to suggest that 60% of withdrawals from the provident fund accounts will be taxed -- that, too, with retrospective effect.
Online petition asking for withdrawal of EPF tax goes viral
An online petition on Change.org against retirement tax has gone viral on social media with 57,716 signups seeking urgent and immediate withdrawal of EPF Tax just a day after it was announced in the Budget.
40% of NPS will be tax exempt
Jaitley said 40% of the National Pension Scheme (NPS) corpus would be tax-exempt at the time of withdrawal to make it attractive for the savers. He said the annuity fund, which goes to legal heirs, also won’t be taxable.
In case of superannuation funds and recognised provident funds, the same norm of 40% of corpus to be tax-free will apply in respect of corpus created out of the contributions made on or from April 1, the minister added.
He said the government was also proposing a monetary limit for the contributions of employer in recognised provident and superannuation fund at Rs150,000 per annum for taking the tax benefit.
The service tax on single premium annuity policies had been reduced to 1.4% from 3.5% of the premium paid in certain cases.
Similarly, Jaitley also announced exemption of service tax for annuity services provided by NPS and services provided by Employees Provident Fund Organisation (EPFO).
The earlier clarification from Adhia seems to have come due to the uproar against the government’s proposal. But the ministry statement has clearly said the matter was not closed as yet.
Finance Bill does not reflect clarification on interest being taxed
“The Finance Bill does not reflect Adhia’s clarification. Perhaps the government may change the relevant provisions,” said Neha Malhotra, executive director of Nangia and Company, an international tax advisory and accounting firm.
Govt to consider rollback of tax on EPF withdrawals
Under all-round attack, the government promised to consider demands for a 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 exempt from tax.
Revenue Secy says only 60% of interest on PF amount will be taxed but govt note is mum on that
Revenue Secretary Hashmukh Adhia went a step further to say that only 60% of interest on contributions made after April 1 will be taxed and that the principal amount of contribution will remain untouched at the time of withdrawal. However, a government press note issued made no mention about taxing only the interest.
What is the new proposal?
Govt proposal says 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.