After outcry, Govt rolls back PF tax proposal

40% relief to NPS withdrawal stays, says Jaitley

After facing an all-out attack, the government on Tuesday rolled back a controversial Budget proposal to tax the employees’ provident fund (EPF) at the time of withdrawal.

Finance Minister Arun Jaitley made a suo motu statement announcing the decision in the Lok Sabha within a week after tabling the Budget. Sources said the change of heart came after Prime Minister Narendra Modi asked Jaitley to look into the proposal that affects middle-class tax savers.

“In view of the representations received, the government would like to do comprehensive review of this proposal and therefore I withdraw the proposals in para 138 and 139 on my Budget speech. The proposal of 40% exemption given to NPS subscribers at the time of withdrawal remains,” Jaitley informed the Lok Sabha. The minister had earlier said that he would address the people’s concern on the proposal while replying to the debate on the Budget. The debate is yet to begin.

Speaking to the media, Minister of State for Finance Jayant Sinha said the government realised the “legitimate” concerns of the people and withdrew the proposal.

Jaitley had proposed to tax 60% of provident fund withdrawals if they were not re-invested in any annuity fund. The proposal evoked  sharp criticism from the public, political parties and trade unions, including the RSS-backed Bharatiya Mazdoor Sangh.

The government had earlier clarified that it proposed to tax EPF as the scheme was being used by high-salaried people to evade taxes, while it was originally meant for those in the non-government sector who earn less than Rs 15,000 per month. As per government estimates, more than 30 lakh EPF subscribers were in the high-salary bracket of the total 3.8 crore subscribers.

The government had also made it clear at a later stage that the scheme did not cover government employees covered under the Government Provident Fund till 2004 . Jaitley had said that the proposal was to bring all pension schemes on a par.

On Tuesday, however, Jaitley said: “The main argument is that the employee should have choice of desire where to invest. Theoretically, such freedom is desirable but it is important for the government to achieve policy objectives by the instrumentality of taxation.”

“In the present reform, the policy objective is not to get more revenue but to encourage the people to join the pension scheme. There are various suggestions, which can also achieve the same policy objective of encouraging people to join the pension scheme,” he added.