Only EPF interest to attract tax, withdrawals will be exempted

Only interest accrued on 60% of the contributions to the Employee Provident Fund after April 1, 2016 will be taxed while the principal amount will remain tax exempt, revenue Secretary Hasmukh Adhia clarified on Tuesday after uproar over the government’s proposal to tax withdrawals from the Employee Provident Fund (EPF).

Adhia said the Budget proposal to tax 60% 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

Small salaried employees with up to Rs 15,000/month income will be kept out of purview of proposed taxation of EPF, Adhia further said.

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.

The move comes a day after finance minister Arun Jaitley announced that government has decided to impose tax at the time of withdrawal on 60% of the contributions made after April 1, 2016, to EPF and other schemes to align it with other pension schemes.

Sources said that the clarification has been sought by senior officials of the EPFO and labour ministry, who also visited the secretary early morning on Tuesday to avoid people withdrawing from the EPF scheme.

According to the Budget presented on Feb 29, employees will have to pay income tax on 60% of the amount they withdraw from the EPF after April 1, 2016. The remaining 40% will be tax free. Currently, the social security schemes run by retirement fund body EPFO are tax free EEE scheme., implying that the deposits, accrual of interest and withdrawals are tax free under the scheme.

Thanks & regards,
Sandeep Jadhav
sandeepjadhav.co@gmail.com