Today the government made pubic the decision to rollback the proposed tax on withdrawal from the Employees' Provident Fund (EPF) contributions. The announcement with regards to it was made by Finance Minister Arun Jaitley in the Lok Sabha.
When FM made the announcement he was cheered by his party colleagues. One online petition seeking rollback of the proposed tax had termed it as draconian act. It was further mentioned in the petition that it will be a killer blow to already tax burdened salaried class which pays 30% income tax and additional 30% as indirect tax in the form of customs, excise, service tax, and many other such taxes.
Arun Jaitley on why he wanted to tax withdrawals from EPF:
FM said that Government had also to come up with the clarification that its intention was not earn revenue by taxing withdrawals from EPF but to motivate people to invest a part of their corpus into annuities to ensure access to pension after retirement.
Other reason mentioned by FM for the proposed tax was that the EPF scheme was being used by the high salaried to evade taxes while it was originally meant for those in the non-government sector earning less than Rs. 15,000 per month.
FM had proposed to tax withdrawals from PF:
While presenting the Budget 2016-17 Finance Minister had proposed that 40% of the total corpus withdrawn at the time of retirement will be tax exempt, both under the EPF and National pension System.
Which meant that 60% of the EPF corpus was taxable unless the amount is invested in an annuity product. Currently withdrawal from EPF is entirely tax free.
This proposal of the FM earned him criticism from the salaried classes and the class opposed the government's move to tax the retirement savings.
After the stern opposition from the salaried class the government decided to relook the issue and hinted that it may confine the tax only to the interest earned on the EPF.
Consultations on rollback:
Post the criticism FM has a meeting with NDA's members of Parliament and explained them proposal in detail and had informed them that any decision on a reversal will be taken by the PM.
Government had two options regarding the proposal. One was to propose to tax only the returns on withdrawal from the PF and the second one was rollback of the proposal.
The opposition had demanded rollback of the proposal.
Reactions to the rollback:
#EPFNoTax: Rollback testimony to power of people in democracy— Minhaz Merchant (@minhazmerchant) March 8, 2016