Controversial EPF tax withdrawn- Business News

Controversial EPF tax withdrawn

  • March 10, 2016  
  • |  
  • UPDATED   15:01 IST

Finance Minister, Arun Jaitley, has withdrawn controversial tax on Employees Provident Fund (EPF).

On the budget day the finance minister proposed to make withdrawals from EPF taxable. It gave people two options at the time of retirement . 1) withdraw the whole amount 2) withdraw 40% and buy annuity from the remaining 60%. Under the first option - withdrawal of the entire amount- tax was levied on 60% and 40% was proposed to make tax-free. For 60% annuity there was no tax proposed on the entire amount.

But there was no clarity from the finance department on what amount tax would be calculated. Conflicting statements came from the finance ministry. In the back drop of all the confusion and backlash from middle class the government has decided to withdraw taxes on EPF.

The Economic Survey earlier stated that that small saving schemes such as Public Provident Fund (PPF) are contributing to the subsidies extended to the well-off. The survey argues that savings schemes ideally should follow the EET (Exempt, Exempt, Taxation) model of taxation, which means that the contribution and the interest on these savings should be exempt while maturity amount should be taxed when it is withdrawn. Contrary to this, the PPF, at the moment follows an EEE model where all the three components are exempt.