PM Modi asks Jaitley to reconsider taxing part of EPF withdrawals, say sources

Gujarat CM Anandiben Patel says has also asked PM to roll back the Budget proposal

Prime Minister Narendra Modi has asked Union Finance Minister Arun Jaitley to reconsider the budgetary proposal, government sources said on Saturday. 

Adding to the pressure on the government to roll back the tax on employee provident fund (EPF) withdrawals, Gujarat Chief Minister Anandiben Patel said she too had requested Prime Minister Narendra Modi to roll back the tax. NDA ally Shiv Sena has sought a rollback and NDA ally Akali Dal said that while they agreed with the taxation in principle, now is not the right time to introduce such a tax.

"We have requested the government to review this and we understand they will do so" Anandiben Patel told Business Standard.

Media reports said an official level meeting was held in PMO on the EPF tax issue two days ago, adding that the Finance Minister is likely to make an announcement the exemptions on the floor of House when he replies to budget.

In Budget 2016, Finance Minister Arun Jaitley announced that 60% of the accumulated EPF savings, including interest, starting April 1, 2016, would be taxable at the time of withdrawal.

Although Gujarat's strength is its stature as a manufacturing state, services, including government employment, lag when compared to states like Himachal Pradesh. As a result, the state government believes that it will hurt people if EPF is taxed.

Top ministers and BJP MPs have also counseled the government to roll back the decision as it could prove politically costly. The RSS-affiliated Bharatiya Mazdoor Sangh has written to the government that it must not go ahead with this step and has not ruled out a joint front with other trade unions to agitate against it if it is not modified.

Jaitley had justified the move to bring in the taxation proposal in the Union Budget 2016-17. While claiming that the proposal would encourage pension savings, Jaitley also said that there was a very large segment of tax defaulters in the country. The government had also come out with a press note that it was considering demands to limit the tax only to interest accrued. Minister of State for Finance Jayant Sinha had said, "The government is looking into the issue."