Labour ministry opposes tax on PF withdrawal



“We are among those countries which are spending very meager amount on social security benefits. Therefore taxing the existing retirement benefits schemes would affect the working class,” Minister of State for Labour and Employment Harish Rawat told PTI.

“We have made our stand very clear to the finance ministry in a letter sent some time ago. I hope that retirement benefits schemes like Employees’ Provident Fund would not be taxed at the time of withdrawals as proposed under the new Direct Tax Code,” the minister added. In the communication to the finance Ministry, the labour ministry had said, “making any attempt to de-incentivise (PF) deposits by withdrawing the preferential tax treatment would have negative impact on continuation of social security coverage to productive workforce.” The Empolyees’ Provident Fund  Orgranisation (EPFO), the latter added, “would be getting adverse impact on running these (retirement) schemes on account of withdrawal of tax incentives under the proposed Exempt-Exempt-Tax mode (EET)”. The draft Direct Tax Code, on which the government has invited comments from the public, proposed to bring all the savings scheme under the EET mode of taxation, which means that a subscriber would be required to pay tax at the time of the withdrawal.

At present, on popular savings schemes like General Provident Fund (GPF) and Public Provident Fund (PPF), no tax is levied either at the time of contribution, accrual of interest, or withdrawal of funds by subscribers. As per the DTC proposal, the EET mode would cover retirement funds, including General Provident Fund, Public Provident Fund , Recognised Provident Fund and Employees’ Provident Fund.
The labour ministry, referring to the three superannuation schemes being run by the Empolyees’ Provident Fund  Orgranisation, said, “as all three schemes are social security schemes, the present tax treatment has been very supportive to the social security by incentivising saving to these funds.”

The three schemes being operated by the Empolyees’ Provident Fund  Orgranisation, a body under the Labour Ministry, are Provident Fund Scheme, Pension Fund under Employees Pension Scheme 1995 and Insurance Fund under the Employees’ Deposit Linked Insurance Scheme 1976 as mandated under the Employees Provident Fund Miscellaneous Provisions Act 1952.

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