Budget 2022

Centre blinks: Jaitley rolls back controversial EPF tax proposal

| Updated on: Mar 08, 2016
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But govt will have to amend Finance Bill, says former Lok Sabha Secretary-General

An odd slice of parliamentary history was made on Tuesday, when Finance Minister Arun Jaitley, responding to all-round criticism, withdrew the controversial proposal to tax Employees’ Provident Fund (EPF) benefits on retirement –– even before the Lok Sabha could take up a discussion on the Union Budget.

Making a suo motu statement in the Lok Sabha, Jaitley said the Centre would like to review the proposal. “Therefore I withdraw the proposals made in para 138 and 139 of my budget speech.”

With this, EPF monies will remain tax-exempt at all three stages –– contribution, accumulation and withdrawal.

The Centre dropped not only dropped the proposal to tax 60 per cent of EPF monies on withdrawal if not invested in an annuity plan, but also the proposed monetary ceiling of ₹1.5 lakh on employer contribution. Also, the proposal to exempt from tax the annuity fund that goes to a legal heir after the death of the pensioner is now being withdrawn.

Jaitley, however, retained the proposal to exempt 40 per cent of corpus withdrawals by retiring National Pension System subscribers.

Unusual procedure Former Secretary-General of Lok Sabha (2005-2010) PDT Achary told BusinessLine , “As far I can remember, such a strange and curious procedure has never happened. Withdrawing two paras from the speech is not enough; it makes no difference to the provisions in the Finance Bill to tax EPF withdrawals. Unless the Finance Bill is amended officially, no change can be brought.” The ire of the salaried class over the taxation proposal, and the upcoming Assembly elections in four big States and the Union Territory of Puducherry, seemed to have weighed on the government. The controversy over the EPF tax proposal had reached the Prime Minister’s Office, which held a meeting with Finance Ministry officials on March 3.

Labour Minister Bandaru Dattatreya hailed the retraction, adding that in the coming days the government will look to further strengthen the EPF regime. Kulin Patel, Director, Willis Towers Watson India, a global advisory services firm, said: “We believe that the wider point and the need for retirement planning and addressing retirement adequacy still remains a critical issue, and that does not change because of any tax proposals being made or rolled back.” Anil Chopra, Group CEO & Director, Bajaj Capital, said that although the Finance Minister’s Budget motive –– to create a pensioned society –– was “noble”, the method chosen was faulty.

Opposition reaction “It was an ill-thought-out move. It is now a relief for salaried people. The government shouldn’t mess with people’s choice,” said Congress spokesperson and MP Rajeev Gowda. “This is similar to their decision to withdraw the Land Acquisition Ordinance. We will oppose all such anti-worker measures,” said CPI Member of Parliament D Raja.

(With inputs from AM Jigeesh)

Published on January 27, 2018

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