Union Finance Minister Arun Jaitley on 8 March 2016 announced to withdraw proposal to tax Employee Provident Fund (EPF) withdrawals. He announced to withdraw the proposal while clarifying NDA government’s stand on the issue in the Lok Sabha.
He further stated that government would also like to comprehensively review EPF tax proposal. However, government retained the tax proposal for National Pension Scheme (NPS) withdrawals.
What was the proposal?
The proposal was made by the Union Finance Minister Arun Jaitley while presenting the Union Budget 2016-17 in the Lok Sabha on 29 February 2016. As per the proposal 60 percent of the amount deposited in the EPF account of the employee would be taxable at the time of withdrawal, and 40 percent would be tax free. This proposal would have become effective from 1 April 2016.
It also said that if the employee re-invested 60 percent of the EPF in an annuity or pension fund then it will not be taxed. At present, the entire amount is tax free at the time of withdrawal if the employee has completed five years of continuous service.
The proposal to tax EPF withdrawals was made with an aim of to create a pensioned society, especially among employees in the private sector who have no provision for pension.
The EPF is a retirement benefit scheme for salaried employees. Any company with over 20 employees is required by law to register with the Employees' Provident Fund Organisation (EPFO).
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