Type of workers exempt from EPF tax to be notified

RSTV Bureau
File Photo: Finance Minister Arun Jaitley with Revenue Secretary Hasmukh Adhia.

File Photo: Finance Minister Arun Jaitley with Revenue Secretary Hasmukh Adhia.

Facing flack for the budget proposal to tax EPF withdrawals, the government today said that it will notify the categories of employees who will be excluded from the controversial tax. Finance Minister has proposed to levy tax on 60% of EPF amount at the time of withdrawal unless it is reinvested in pension schemes.

“We have put an excluded employees category in the Finance Bill 2016. The government will notify the excluded category of employees to whom this new regime will not apply,” said a finance ministry official.

The excluded employees would primarily be the ones drawing statutory wages of up to Rs 15,000 per month.

Following a backlash from employees union and political parties, Jaitley has already signalled willingness to reconsider the proposal.

“There has been some reaction. When the debate comes up in Parliament, I will give the government’s response as to what decision we finally take,” he said earlier this week.

On table is partially waiving the proposed tax by levying it only on the interest accrued and not on the principal.

There are also suggestions for complete rollback.

The EPFO has about 3.7 crore members of which about 3 crore members are those in the earning category of Rs 15,000 and below (statutory wages).

Explaining the rationale behind the Budget proposal, Economic Affairs Secretary Shaktikanta Das said the EPF has been exempt at all three stages — contribution, interest and withdrawal– and was originally meant for employees  whose salaries are Rs 15,000 or below per month.

But over the years the benefit has been also utilised by people who are in much higher income brackets, Das said.

“There was an intention of the government to see that the third leg of the Exempt-Exempt-Exempt benefit also should go to target group. You will hear something from Finance Minister on this very quickly,” he said.

Das said after the launch of EPF, the government also came out with another pension scheme NPS, which is Exempt Exempt Tax, irrespective of income bracket. “So there was need for parity (between EPF and NPS)”.

(With agency inputs).