PPF stays on exemption list, only EPF interest to attract tax

New Delhi

In an interview to PTI, 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.

"We are worried about people blowing off the entire 100 per cent amount on retirement and not investing in pension products. Otherwise, the responsibility comes on government to take care of healthcare," Adhia said.

Explaining further Adhia said the government proposes to change the provision not to take tax from salaried class, but to help people plan for retirement better.

"We are saying, 40 per cent of it (EPF amount) will be available at the time of retirement. For the remaining 60 per cent, we want to encourage you to invest in annuity product. So if your corpus is Rs 1 crore, Rs 40 lakh you withdraw and use it for house construction or other work, Rs 60 lakh you invest in annuity so that you keep getting pension," he said.

However, central trade unions have opposed the Budget proposal to tax EPF withdrawals and as many as 11 of them have planned to go on a nationwide strike on March 10 to protest against government's unilateral labour reforms and anti-worker policies including taxation of EPF withdrawals.

"This is an anti-worker budget proposal. Taxing PF means double taxation. PF is deducted from a salary on which workers have already paid tax. Tax should be imposed on new income. PF accumulation are not generated or new income," BMS General Secretary Virjesh Upadhyay said.

He said BMS would write to Prime Minister Narendra Modi and Jaitley to protest against these proposals and demand to roll those back."

All India Trade Union Congress General Secretary Gurudas Dasgupta said this issue would be raised by left parties in Parliament while debate on the Budget.

At present, social security schemes run by retirement fund body EPFO fall under Exempt-Exempt-Exempt scheme in which deposits, accrual of interest and withdrawals are tax free.

Chartered Accountancy firm Nangia & Co said the current tax structure of National Pension Scheme (NPS) was Exempt- Exempt-Tax, which was at a sharp disadvantage to the other major retirement products such as the Employees Provident Fund (EPF) and the Public Provident Fund (PPF).

"To remove the anomalies and inconsistencies in the taxation of the NPS, the Government has given partial relief by giving exemption of 40 per cent at the time of withdrawal in order to encourage retirement savings," Nangia & Co Executive Director Neha Malhotra said.