Another rollback

There seems to no end to the government’s indecisiveness over the Employment Provident Fund (EPF). Days after the government decided to lower EPF to 8.7 percent it has been raised to 8.8 percent again. As per reports, the Central Board of Trustees for the EPF Organisation, which advises the government on the rate, had recommended 8.8 percent. But the finance ministry decided to go against it. The move to lower the rate was met with anger from trade unions given that the EPF is a major savings option for working class or salaried people. This is the third rollback on EPF. Last month the government was forced to withdraw the Budget proposal to tax a certain portion of withdrawals. Subsequently, it withdrew tighter withdrawal norms. The EPF works as a savings instrument, where a percentage of the salary is put aside into a fund. Salaried employees contribute 12 percent of their basic salary towards the fund and their employers match that sum. The aggregate amount is then placed with the Employee Provident Fund Organisation. The organisation then invests the total sum gathered, where interest is generated and a corpus built for the employee. Before the Centre’s intervention, the savings weren’t taxed at the time of investment, on the interest earned and at the time of withdrawal on maturation. During his Budget speech, Finance Minister Arun Jaitley had announced that the government would tax 60 percent of the savings accrued from EPF at the time of withdrawal. After an outcry from various sections of the salaried class, the government finally rolled back the measure, saying it would only tax the interest earned on the fund. However, the government also announced that the employer’s share of the contribution to the EPF cannot be withdrawn until employees turn 58. If the government’s idea was to incentivize savings in the NPS, it could have taxed private insurance products. Instead, what the government has done is push salaried workers to invest in annuity products offered by insurance companies. Moreover, it restricts the choice of retired people to invest in assets of higher returns. Finally, we had the Centre’s ridiculous proposal that the employer’s share of the contribution to the EPF cannot be withdrawn until employees turn 58. Suffice to say, keeping aside provident fund as strictly a retirement benefit is a luxury that not every salaried worker can afford, given their social and economic insecurities. It is something they bank on when there is an illness or a marriage in the family.  Under pressure from protesting trade unions, the Centre has thankfully cancelled it.