Only 40% of EPF deposits to be tax-exempt

 Breaking from the long-held practice of exemption at all stages, the Budget for 2016-17 seeks to impose a retirement tax at the time of final withdrawal on 60 per cent of contributions made after April 1, 2016, to EPF and other schemes.

At present, social security schemes run by retirement fund body EPFO are tax free ‘Exempt-Exempt-Exempt (EEE)’ scheme under which deposits, accrual of interest and withdrawals are tax free.

In order to bring greater parity in tax treatment of different types of pension plans, it is proposed that the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 per cent of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax, said Budget Memorandum.

It is proposed to provide that any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40 per cent of the annuity, shall be chargeable to tax.