After a huge uproar and the confusion over a proposal in Budget 2016 to tax 10% of employee provident fund withdrawals, the Finance Ministry has issued a clarification. Explaining the proposal, Revenue Secretary Hasmukh Adhia said contributions to the Public Provident Fund (PPF) will continue to remain exempted from tax.
Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016. “The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed.”
This 60 per cent will also be tax exempt if it is invested in a pension annuity schemes, he said. “This is not a revenue mobilisation exercise,” he added.
Adhia said that no part of PPF will be taxed and the present scheme of investment up to Rs 1.5 lakh in a year will continue to be tax exempt. PPF on withdrawal will continue to be out of the tax ambit.
“In case of superannuation funds and recognized provident funds, including EPF, the norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016,” Finance Minister Arun Jaitley had said in the Budget speech on Monday, noting that the aim was bring superannuation and provident funds in line with the National Pension Scheme’s tax structure.