EPF flip-flop continues, govt now says will 'consider' taxing only interest

The latest twist came after Revenue Secretary Hasmukh Adhia earlier in the day said only interest on 60% of EPF would be taxed at withdrawal

In the latest flip-flop during an ongoing debate over taxing part of EPF, the Finance Ministry has released a statement dated 3:16 p.m. March 1, 2016, saying that the FM Arun Jaitley would only ‘consider’ proposals to tax only the interest on 60% of savings.
 
Following an uproar over the Budget proposal to tax 60% of the corpus at withdrawal, Revenue Secretary Hasmukh Adhia earlier on Tuesday was quoted as saying that the government would only tax the interest accrued from 60% of EPF, and that, too, starting April 1, 2016.


Read our full coverage on Union Budget 2016
 
The latest ‘clarification’, however, has taken the wind out of the relief announced earlier by the Revenue Secretary.
 
“We have received representations today from various sections suggesting that if the amount of 60% of corpus is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount. We have also received representations asking for not having any monetary limit on the employer contribution under EPF, because such a limit is not there in NPS. The Finance Minister would be considering all these suggestions and taking a view on it in due course,” the ministry statement said. 

The statement also clarified that 60% of the corpus would be tax-free if invested in annuity. 

"It is expected that the employees of private companies will place the remaining 60% of the Corpus in Annuity, out of which they can get regular pension. When this 60% of the remaining Corpus is invested in Annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity," the statement said. 

It is only the interest on contributions made after April 1, 2016 which will be taxed, Revenue Secretary Hasmukh Adhia had told a wire news agency earlier Tuesday. 

"There is no change in the status of public provident fund (PPF). EEE (tax exempt at the time of contribution, tax exempt on returns and tax exempt on withdrawals) scheme will continue for PPF," he was quoted as saying by PTI. "There is no 40% limit on PPF. It will be 100% exempt".

 
The opposition to the tax move, from #rollbackEPF which is trending on Twitter to an online petition against the proposed tax, is therefore unlikely to abate.
 
An online petition started by Gurgaon-based finance professional Vaibhav Aggarwal on Change.org, has garnered nearly 3,000 votes against Jaitley's proposed tax just a day after it was announced in the Budget. 
 
The petition said, "This is a draconian act and will be a killer blow to the already tax burdened salaried class which pays 30 per cent income tax and 30 per cent taxes in indirect form customs, excise, service tax etc."
 
The rapid support that the petition is gathering found a parallel in an ongoing Twitter poll by this newspaper, where more than 70% readers voted against the tax, even if it is levied only on the interest and not on the principal.

Other readers, too, criticised the move in clear terms. 

One reader said: "Taxing the only tax efficient avenue available to salaried class for saving for their retirement.... NDA government just lost one of their biggest vote banks! The salaried class is already burdened from head to toe with taxes - Income tax, service tax, VAT, CESS - and now you are going to take a cut even from their life time of hard earned retirement savings! If the government has failed to execute schemes for generating more revenue why should the common man pay for their fault? This is one of the most exploitative steps from government!"
 
Another didn’t mince words: "In a country with no concept of Social security, PF accumulations provide needed security to a retiring person. Taxing this is most heinous crime that can be committed by any government. NDA is hitting salaried class below the belt through increasing cost of living, reducing incentives on savings & taxation policies which benefit only the business class & rich farmers."

Some, however, did came out in support: "(The) Time has come to understand how EPF works , Corpus of EPF might be more than two lakh crore , Is it possible for government to keep paying 8.5 interest rate year on year Are there such opportunities available year on year to generate such return on such huge corpus? The answer is no, Seems government was paying old retirees with funds contributed from new employees and this has to stop some day. The move was right , though painful."