In the face of stiff opposition from several quarters, Finance Minister Arun Jaitley on Tuesday completely rolled back the controversial proposal to tax the Employees’ Provident Fund (EPF) at the time of withdrawal.
The Minister made a suo motu statement in the lok Sabha in which he also announced withdrawal of monetary limit for contribution of employers to provident and superannuation fund of Rs 1.5 lakh for taking tax benefit.
Jaitley, however, left untouched the existing rule to tax 60 per cent of National Pension Scheme (NPS) withdrawal.
“In view of the representations received, the Government would like to do a comprehensive review of this proposal and therefore, I withdraw the proposals in para 138 and 139 of my Budget speech. The proposal of 40 per cent exemption given to NPS subscribers at the time of withdrawal remains,” the Minister said.
Jaitley had in his Union Budget for 2016-17 proposed to tax withdrawal of 60 per cent of accumulations in the EPF after April 1, 2016. He proposed to exempt these from Income-Tax if the amount was invested in pension annuity scheme. The Government then justified the move saying the attempt was to create a pensioned society and encourage employees to invest their savings in annuities.
However, a day after the Budget the Government had indicated that it could consider imposing the tax only on the interest part of the corpus. But Tuesday’s decision as announced in the lok Sabha withdraws the proposal lock-stock-and-barrel.
In his statement, Jaitley said a number of representations had been received from various sections of society, including MPs, suggesting that this change would force people to invest in annuity products even if they are not willing to do so.
“The main argument is that the employee should have a choice of where to invest. Theoretically, such freedom is desirable, but it is important for the Government to achieve policy objectives by the instrumentality of taxation.
“In the present reform, the policy objective is not to get more revenue but to encourage the people to join the pension scheme. There are various suggestions received, which can also achieve the same policy objective of encouraging people to join the pension scheme,” he said.
The proposal would not have impacted 3.26 crore EPFO subscribers drawing statutory wage up to Rs 15,000 per month. EPFO has a total subscriber base of 3.7 crore.
Even as the Government withdrew the EPF proposal, the ruling BJP and the Opposition Congress again locked horns on the issue.
Rahul, in a series of tweets, said the Government was forced to listen to the people and roll back the “patently unfair” tax on EPF.
“But the attempt to tax the safety net of millions of hard working middle class ppl was morally wrong&shows this Govt’s anti-ppl mindset(sic)”, he said on the micro-blogging site. The BJP welcomed the decision and took a jibe at Rahul Gandhi.
“BJP welcomes the (Government’s) decision to withdraw the proposal. The budget was hailed across the country for its focus on the common man, poor and farmers but a section was upset with the move to tax EPF. Its withdrawal is a good step,” party national secretary Shrikant Sharma said.
“Congress and Rahul Gandhi can take credit for all decisions. He can take credit for the passage of GST and other Bills if he lets Parliament function and helps the Government in the passage of Bills. These are not the Bills of BJP but of the country,” he said.
Minister of State for Finance Jayant Sinha said the Government rolled back the proposal as it realised that concerns raised by lots of people were very legitimate.