Under fire from all sides, the Finance Ministry on Tuesday made it clear that the proposed new tax treatment on withdrawal from the Employees Provident Fund (EPF) will not apply to EPFO members who are within the statutory wage limit of ₹15,000/month.

This would mean that nearly three crore out of the 3.7 crore contributing members of the Employees Provident Fund Organisation (EPFO) will not be covered under the proposed new tax regime.

However, it will apply to the other 60 lakh or so contributing EPFO members who have voluntarily accepted EPF and are currently “highly paid” employees of private sector companies.

It is for this category of “highly paid” people, who are not subjected to any tax liability on withdrawal, that the government is looking to change the tax treatment for withdrawals.

Annuity contribution

In the Budget, the government said that (highly paid private sector) employees can withdraw their corpus without tax liability, provided they invest 60 per cent of the corpus in an annuity product. This would help create pension security for them, it said.

However, if an employee chooses not to put any amount in annuity product, then 60 per cent of the corpus created after April 1, 2016 will be subjected to tax.

Several salaried-class citizens took to social media to protest against the proposed change.

The Finance Ministry also clarified that the proposed change would not be applicable to PPFs. The purpose of this reform is to encourage private sector employees to opt for pension security.

Towards this end, the government has announced that 40 per cent of the corpus withdrawn at retirement will be tax exempt, both under recognised PFs and National Pension System,

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

srivats.kr@thehindu.co.in

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