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Finally, some sense prevailed over Jaitley

Finally after too much of criticisms and outrage, the Government has agreed to withdraw the controversial proposed tax on Employee Provident Fund (EPF). This is a big victory for the 25 lakh people, who put their savings in EPF. Good to see that the sense of the Finance Minister has prevailed. Rather than taxing the salaried person who is already paying the taxes, if FM can tax those builders, jewellers, corporate houses then it will be better for the country. FM Jaitley’s explanation, that EPF would be taxed; to encourage investment in the NPS is like saying the solution is worse than the problem. Let NPS grow on its own steam, with adequate publicity being provided by the Government. However, it was a stupid idea to tax the EPF scheme, because even low paid unskilled workers are also benefitting from it.

Some even feel that, this exercise appears to be pre-planned to project NaMo in better light. It takes months to frame budget provisions and without second thought government has withdrawn it, seems strange? It’s a political gimmick played brilliantly by the government. Election Commission (EC) declared the elections after the budget and government rolls back the provision post declaration of elections, means Model Code of Conduct is continued. What the EC is doing?

The tax, announced in the Union Budget last week, has been condemned not only by the opposition as “anti-middle class”, but also by affiliates of the ruling BJP’s ideological mentor, the RSS, like the Bharatiya Mazdoor Sangh (BMS).

The minister expressed that a Budget proposal to make 40 per cent of the total withdrawal from the National Pension Scheme or NPS tax free, announced along with the EPF scheme, will however remain unchanged. The reversal was seen as a foregone conclusion after Narendra Modi asked the Finance Minister to carry out a detailed examination of the policy and to defer the changes till that exercise was finished. The PM took a purely political call in view of the resentment and confusion the Budget announcement had created among salaried employees in the private sector. The EPF is a retirement benefit scheme for salaried employees. Opposition and trade unions have taken the Centre to task on the issue after Jaitley in his Budget speech proposed to levy a tax on 60% of EPF withdrawal.

Before Budget 2016, all employees would put 12% of salary every month into their EPF account and the company would put another 12%. The money deposited in the EPF saves tax under Section 80C and is exempt at entry. Interest is also accrued every year on the same but no tax is to be paid on the interest. When the employee turns 58, they get all the money, tax free.

However, as per the new proposal in Budget 2016, exemptions at withdrawal of EPF are coming to an end. At the time of exit, 60% of the money in EPF will be taxed, unless you invest in annuities. An annuity provides a fixed sum of money each year, like a pension.

Jaitley had proposed in the Budget that after April 1 this year, 60 per cent of the amount deposited in the EPF account of the employee would be taxable at the time of withdrawal, and 40 per cent would be tax-free. The policy objective is not to get more revenue but to encourage people to join the pension scheme. The main argument was that the employees should have the choice of where to invest his money. Theoretically such freedom is desirable, but it is important for the government to achieve policy objectives by instrumentality of taxation.

The government argued that its EPF proposal would affect only high earners in the private sector – about 60 lakh of the 3.7 crore people who contribute to the EPF and who, it claims, have used the EPF scheme to evade taxes.

The petition, which was started by Vaibhav Aggarwal from Gurgaon, got the support of over 2.5 lakh people who sought urgent and immediate withdrawal of the EPF tax that was announced in the Budget. Vaibhav voiced his concern for a change as an individual; there after lakhs of Indians.


(Any suggestions, comments or dispute with regards to this article send us on [email protected])

Dr Vaidehi Taman
Dr Vaidehi an Accredited Journalist from Maharashtra is bestowed with Honourary Doctorate in Journalism, Investigative Journalist, Editor, Ethical Hacker, Philanthropist, and Author. She is Editor-in-Chief of Newsmakers Broadcasting and Communications Pvt. Ltd. for 11 years, which features an English daily tabloid – Afternoon Voice, a Marathi web portal – Mumbai Manoos, monthly magazines like Hackers5, Beyond The News (international) and Maritime Bridges. She is also an EC Council Certified Ethical Hacker, Certified Security Analyst and is also a Licensed Penetration Tester which caters to her freelance jobs.

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