Review EPF tax proposal, PM tells Jaitley

Meanwhile, the entire episode has taken a political turn with Congress vice-president Rahul Gandhi stepping up the pressure on the Centre.

On a two-day visit to Assam, he said on Saturday that he will continue to fight till it rolls back the proposal for levying tax on EPF withdrawals.

“This Prime Minister allows thieves to turn their black money into white under the recent budget’s ‘fair and lovely scheme’, but taxes the life-long savings of the honest salaried class,” the Congress vice-president said addressing an election rally.

He said that he would continue to fight for the salaried class and put pressure on the government which “works for a selected group of industrialists and those with black money.”

In his Budget, Jaitley had proposed that after April 1, 2016, 60 per cent of the amount deposited in the EPF account of the employee will be taxable at the time of withdrawal, while 40 per cent will be tax free. Earlier, the entire EPF deposit was tax free at the time of withdrawal if the employee has completed five years of continuous service.

The proposal has drawn flak from parties, unions and other quarters.

Attacking the Prime Minister, Gandhi accused him of playing fraud on the people by failing to fulfil his poll promises and said those who voted for him are now seeking “refund”.

“I’ll continue to pressurise this government as it is not the government of the honest working class...it is not the government of poor farmers, backward classes, youths, women, Dalit, adivasis and minorities,” he said.

Labour Minister Bandaru Dattatreya on Saturday said he is holding discussions on the controversial Budget proposal to tax EPF withdrawals with the Finance Ministry and government will reveal final details on the issue during the debate on Budget.

“As the Labour and Employment Minister, I am discussing with the stakeholders and also I am discussing with the Ministry of Finance and we are in touch with all concerned people, including trade unions. So, now all these things will be revealed out at the time of the debate of the Finance Budget in Parliament itself by Finance Minister (Arun Jaitley),” he told reporters in Hyderabad. 

Sources say the government may consider two options — first a proposal to tax only the returns on withdrawal and second a possible rollback of the provision. While taxing the interest on the withdrawal would need only a clarification of intent in Parliament, a rollback may need an amendment which may be moved when the Budget comes for discussion in the Lok Sabha.

As the Opposition demanded a rollback, the government claimed that the EPF scheme was being used by the high salaried to evade taxes while it was originally meant for those in the non-government sector earning less than Rs 15,000 per month. As per government estimates, a little over 30 lakh EPF subscribers were in the high salary net out of 3.8 crore EPF subscribers. The government later clarified that the scheme does not cover government employees under the Government Provident Fund till 2004 or the National Pension Scheme or the NPS. Finance minister Jaitley had contended that the proposal was to bring all pension schemes at par.

The Finance Ministry had said in a statement earlier this week that the new rule will keep the Provident Fund corpus tax free if only 40 per cent is withdrawn outright at the time of retirement and 60 per cent is re-invested in an annuity or pension fund.

Meanwhile, EPFO trustees’ meet later this month is likely to be a stormy affair as trade unions will raise their voice against the Budget proposal of taxing EPF withdrawals.

“We have received the notice for 212th meeting of the Central Board of Trustees (CBT) on March 17. We will definitely raise the issue of taxing EPF withdrawals as proposed in the Budget by Finance Minister Arun Jaitley,” All India Trade Union Congress Secretary and EPFO trustee D L Sachdev said.