NEW DELHI(PTI): Smarting under an all-round attack over a proposal to tax provident fund withdrawals, the government on Tuesday promised to consider demands for a possible partial rollback but asserted that PPF will continue to remain tax-exempt.
A day after the 2016-17 Budget proposed taxing 60% of the withdrawal from Employee Provident Fund (EPF) on contributions to be made after April 1, the government was hard pressed to explain that the move was aimed at high-salaried class and not the overwhelming section of 3.7 crore EPF members.
After a couple of clarifications including one that said the government would only tax the interest and not the principal withdrawn, the government came out with a press note that it was considering demands to limit the tax only to interest accrued.
Minister of State for Finance Jayant Sinha also later told reporters, “The government is looking into the issue.” He said those below Rs 15,000 a month of statutory wage limit “will not be affected”.
“Since many people have registered protest, we are looking into it. Let’s wait for a decision,” he said.
Revenue Secretary Hashmukh Adhia also said the demand for tax on the interest component only would be taken into considering while taking a final view on the issue.
Earlier in the day, Adhia had said only interest on 60% of contributions made after April 1, 2016 will be taxed and that the principal amount of contribution will remain untouched at the time of withdrawal.
The Ministry statement said that the new tax proposal was aimed at taxing only the high salaried individuals totalling about 70 lakh people out of the 3.7 crore employee provident fund (EPF) members. About 3 crore individuals come under the statutory wage limit of Rs 15,000 per month so they will not be affected by the proposed changes.
Finance Minister Arun Jaitley in his Budget for 2016-17 also proposed a monetary limit for contribution of employer in recognised PF and superannuation fund at Rs 1.5 lakh per annum for taking tax benefit.
The proposals came under immediate attack from various employees unions including RSS-backed BMS and also the political parties who termed it as “an attack on the working class and a clear case of double taxation.” The Ministry said, “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.”