F‌inance Ministry clears its stance on EPF taxation

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New Delhi, March 2: There was a huge uproar a day after Finance Minister Arun Jaitley said that 40% of the total EPF corpus would be exempted of tax and the rest 60% would be taxed.

However, the ministry has come up with a clarification saying that the ministry was not talking about the entire 60% corpus but only its interest component.

Arun Jaitley

Moreover, the tax would be deducted on the contribution to the corpus from April 1, 2016 and not the accumulated corpus. On Tuesday afternoon, there was another clarification from the ministry that clarified that employees could avoid tax on full EPF corpus if it was invested in an annuity plan.

Experts believe that there is a strong chance that the proposal to amend the EPF rule may be "completely rolled back".

Sonu Iyer, tax partner and national leader-people advisory services, EY India said,"I think there is a very strong chance of this thing being completely rolled back."

The ministry further said,"it applies to only about 60 lakh contributing members who have accepted EPF voluntarily and (they) are highly paid employees of private sector companies".

The ministry has also clarified that inherited annuity would not be taxed and an EPFO member with a salary of less than Rs 15,000 per month and PPF will not be affected.

The main category of people for whom EPF was created are within the wage limit of Rs 15,000 per month. Out of around 3.7 crore contributing members as on today, close to 3 crore subscribers are in this category.

This means that the amendment would affect only 60 lakh of the 3.7 crore members. The statement further said,"This category can, at present, withdraw money without any tax liability. We are changing this. What we are saying is that such an employee can withdraw without tax liability, provided he contributes 60% in annuity products, so that pension security can be created for him, according to his earning level." It further added," "However, if he chooses not to put any amount in an annuity product, tax would not be charged on 40%."

As per the budget proposed by Arun Jaitley, there is a restriction on the withdrawal not exceeding the employees' contribution and interest accrued on it on cessation of employment.

The entire amount can be withdrawn only on retirement at the age of 58 years and would be taxed if not invested in an annuity scheme.

This led to a public outcry among salaried individuals, which forced the government to come out with a clarification.

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