Controversial EPF tax may be deferred after PM Modi steps in
A controversial budget proposal to tax provident fund withdrawals may be deferred, with Prime Minister Narendra Modi asking for wider consultations on the move.Updated: Mar 05, 2016, 22:30 IST
A controversial budget proposal to tax provident fund withdrawals may be deferred, with Prime Minister Narendra Modi asking for wider consultations on the move that has turned into a political hot potato.
The deferment, not a rollback, is likely given that Modi is sensitive to the salaried class, top government sources told Hindustan Times, signaling some possible relief for a core support base of the Prime Minister. The proposal is to come into effect from April 1.
The sources said the Prime Minister had studied the representations made to the government that had sought a rollback of the tax.
“The Prime Minister … has asked the finance minister to revisit the amendments to the Finance Act and explore all options so that the middle-class Indians can properly invest their savings,” said a top government source.
Finance minister Arun Jaitley is likely to clarify on the issue in Parliament on Tuesday, sources said.
The government is under pressure from not only the Opposition and labour unions but also some of its allies and the RSS-affiliated Bharatiya Mazdoor Sangh which has slammed the tax proposal as “disgusting”.
A decision to put off the tax rollout would give the Congress and other opposition parties a rallying point to claim victory during the Parliament’s ongoing budget session.
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 [%20%20]April 1, 2016.
EPF is India’s biggest social security scheme with some 60 million workers depending on it for post-retirement savings.
The budget has also proposed a monetary ceiling of Rs 1.5 lakh on employers’ contribution to PF accounts.
The finance ministry has indicated that it was willing to re-visit the decisions.