<p>The Budget proposal to tax 60% of the interest earned on the EPF (Employees’ Provident Fund) on withdrawal is ill-advised to say the least. Without sitting on any prestige, Finance Minister Arun Jaitley should roll back the move as emotional outburst of over six crore EPF subscribers is totally justified. The government has no justification to pinch their life-time savings which they look up to for post retirement obligations like marriage of their children and meeting their essential day-to-day needs such as the ever-increasing cost of health services, with the state almost abdicating its responsibility in favour of brazen commercial interest of star category hospitals. Instead of being empathetic to the middle class citizens, the finance minister has found them an easy target for raising resources which may not even be spent qualitatively. So, the frustration of employees on introduction of Exempt-Exempt-Tax (EET) principle with regard to their EPF saving is understandable. If the move is then compared to the one on giving amnesty to those who have not been paying their taxes and unfavourable inferences are drawn, the government cannot expect many supporters in its camp, at least on this count.<br /><br />The argument for a parity between the under-performing National Pension Scheme (NPS) and EPF on tax treatment is totally flawed. Why is it that the parity can be brought only by making EPF withdrawal EET? The parity can be brought other way round as well – make NPS also EEE (Exempt-Exempt-Exempt) making withdrawals from the NPS also tax free. That would make NPS and EPF eminently at par and bring some cheers for the finance minister. There is yet another argument being advanced by Jaitley through the media about his ‘noble’ intensions behind the EPF move, which is to make India a pension society, thus forcing salaried class not to withdraw their entire corpus and leave 60% into annuity which would give a monthly pension. Fine, but what would be the returns on the residual corpus – just 6-7%, which will again be taxed as annual income!<br /><br />It looks as if the government is hell-bent on bringing the interest rates down to help the over-leveraged corporates financed by reckless bank lendings. The pressure has started building on the Reserve Bank of India to go in for another major cut in the policy rates. A huge rally in the stock market on Tuesday followed this signal. The trouble is that investment is being seen as a function only of debt, but what is being forgotten is that each loan given by a bank must have equivalent depositors in the form of savers, who unfortunately are facing a powerful lobby which feels as if all the economic ills can be removed by lowering interest rates. In that case, the sub-zero interest rates in Japan should have helped it to be on top of the global growth chart. </p>
<p>The Budget proposal to tax 60% of the interest earned on the EPF (Employees’ Provident Fund) on withdrawal is ill-advised to say the least. Without sitting on any prestige, Finance Minister Arun Jaitley should roll back the move as emotional outburst of over six crore EPF subscribers is totally justified. The government has no justification to pinch their life-time savings which they look up to for post retirement obligations like marriage of their children and meeting their essential day-to-day needs such as the ever-increasing cost of health services, with the state almost abdicating its responsibility in favour of brazen commercial interest of star category hospitals. Instead of being empathetic to the middle class citizens, the finance minister has found them an easy target for raising resources which may not even be spent qualitatively. So, the frustration of employees on introduction of Exempt-Exempt-Tax (EET) principle with regard to their EPF saving is understandable. If the move is then compared to the one on giving amnesty to those who have not been paying their taxes and unfavourable inferences are drawn, the government cannot expect many supporters in its camp, at least on this count.<br /><br />The argument for a parity between the under-performing National Pension Scheme (NPS) and EPF on tax treatment is totally flawed. Why is it that the parity can be brought only by making EPF withdrawal EET? The parity can be brought other way round as well – make NPS also EEE (Exempt-Exempt-Exempt) making withdrawals from the NPS also tax free. That would make NPS and EPF eminently at par and bring some cheers for the finance minister. There is yet another argument being advanced by Jaitley through the media about his ‘noble’ intensions behind the EPF move, which is to make India a pension society, thus forcing salaried class not to withdraw their entire corpus and leave 60% into annuity which would give a monthly pension. Fine, but what would be the returns on the residual corpus – just 6-7%, which will again be taxed as annual income!<br /><br />It looks as if the government is hell-bent on bringing the interest rates down to help the over-leveraged corporates financed by reckless bank lendings. The pressure has started building on the Reserve Bank of India to go in for another major cut in the policy rates. A huge rally in the stock market on Tuesday followed this signal. The trouble is that investment is being seen as a function only of debt, but what is being forgotten is that each loan given by a bank must have equivalent depositors in the form of savers, who unfortunately are facing a powerful lobby which feels as if all the economic ills can be removed by lowering interest rates. In that case, the sub-zero interest rates in Japan should have helped it to be on top of the global growth chart. </p>
