Union Finance Minister Arun Jaitley on Tuesday announced the withdrawal of the budget proposal on taxing Employees Provident Fund, following a backlash in and outside Parliament.
The proposal had sought to make up to 60 per cent of savers’ corpus withdrawn from the EPF tax-free if invested in annuity, according to the statement Mr. Jaitley made in the Lok Sabha. The period return on the annuity was to be taxable.
The withdrawal decision, however, was taken after MPs pointed out that the tax would “force people to invest in annuity product even if they are not willing to do so.”
The main argument was that the employees should have the choice of where to invest, he said. The objective of encouraging people to join the pension scheme could be achieved through other ways on which the government has received suggestions.
“A number of representations have been received from various sections, including Members of Parliament, suggesting that this change [EPF tax] will force people to invest in annuity even if they are not willing to do so,” Mr. Jaitley said. “The government would like to do a comprehensive review... and therefore I withdraw the proposal.”
The 40 per cent exemption given to subscribers of the National Pension Scheme (NPS) at the time of withdrawal remains, the Finance Minister clarified. This would make the NPS, which gives returns of over 11 per cent, more attractive to pension savers than other options, Mr. Jaitley later told reporters. The objective of the reform was “not to get more revenue but to encourage more private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund account,” he said in the statement.
Towards this objective, it was announced that 40 per cent of the total corpus withdrawn at the time of retirement will be tax-exempt under both provident fund and the NPS.
‘Pension security was the aim’
Mr. Jaitley told the Lok Sabha that the objective of the Employees Provident Fund tax proposal was only to “encourage more private sector employees to go for pension security after retirement.”
In a statement, Mr. Jaitley said it was towards this objective that it was announced that 40 per cent of the total corpus withdrawn at the time of retirement would be tax-exempt under both provident fund and the NPS.
It was expected that the employees of private companies, the statement said, would place the remaining 60 per cent of the corpus in annuity, out of which they could get a regular pension.
“We recognised that the feedback and inputs we were getting from the public and salaried classes was relevant,” Minister of State Jayant Sinha said, speaking at a post-budget session at the FICCI.
