After tremendous criticism from the middle class taxpayers, tax analysts and opposition parties; the Government has finally decided not to tax EPF Withdrawals. An announcement to this effect was made by our Hon’ble Union Finance Minister, Mr. Arun Jaitley.
During the whole session of Budget 2016, the most controversial topic was taxation of EPF Interest. Mr. Jaitley had clarified that 60% of the Interest at the time of withdrawal of EPF will be taxable. However, balance 40% Interest would be exempt from tax. He also stated that if a taxpayer invests his EPF corpus in any pension product like annuity, the EPF withdrawal would not be taxable. His intention behind this decision was to cover the citizens in the pension ambit.
However, Analysts were of the opinion that each person should have the choice of where to invest and hence Government’s stand of exempting EPF Withdrawal on Investment of corpus in pension products is unfair. Some other rationales were also made that the EPF corpus is used by many taxpayers to buy their dream house or the marriage of their son/daughter. Hence, taxing the pension scheme would cause undue hardship for them.
In light of all the criticism, the said roll back was expected.
However, the roll back is applicable only for EPF Withdrawal and therefore the proposal of 40% exemption for withdrawal from National Pension Scheme (NPS) kept intact.
The relevant speech of Mr. Arun Jaitley made on Tuesday in parliament is as follows-
“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 pension scheme. In view of the representations received, the Government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal in paragraph 138 & 139 of my budget speech. The proposal of 40% exemption given to NPS subscribers at the time of withdrawal remains.”