Centre on backfoot over tax on EPF

Earlier in the day, Revenue Secretary Hashmukh Adhia said only 60 per cent of interest on contributions made after April 1, 2016 will be taxed and that the principal amount of contribution will remain untouched at the time of withdrawal. 

However, in the evening a government press note said a proposal to tax only interest and not principal was under consideration. After that Adhia also said there was a demand being made to this effect and it would be taken into consideration. 

The press note said that the new tax proposal was aimed at taxing only the high salaried individuals totalling about 70 lakh people out of the 3.7 crore employee provident fund (EPF) members. About 3 crore individuals come under the statutory wage limit of Rs 15,000 per month so will not be affected by the proposed changes. 

Finance Minister Arun Jaitley in his Budget for 2016-17 on Monday had proposed that 60 per cent of the withdrawal on contribution to employee PF made after April 1 this year will be subject to tax. 

This would apply to superannuation funds and recognised provident funds including EPF. He also proposed a monetary limit for contribution of employer in recognised PF and superannuation fund at Rs 1.5 lakh per annum for taking tax benefit. 

The proposal came under immediate attack from various employees’ unions, including RSS-backed BMS, and political parties, who termed it as “an attack on the working class and a clear case of double taxation.” 

The Finance Ministry issued a press note containing a clarification about the proposed changes in the tax treatment of recognised PFs and recognised pension schemes noting that there seems to be some amount of lack of understanding about the changes made in the Budget on the issue. 

“We have received representations on Tuesday from various sections suggesting that if the amount of 60 per cent of corpus is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount.