The uproar from the middle class and threats by trade unions including by the RSS-controlled Bharatiya Mazdoor Sangh, to take to the streets, over the Budget proposal to tax 60 per cent of the Employe
The uproar from the middle class and threats by trade unions including by the RSS-controlled Bharatiya Mazdoor Sangh, to take to the streets, over the Budget proposal to tax 60 per cent of the Employees’ Provident Fund (EPF) at the time of withdrawal unless it is invested in an annuity scheme like the National Pension Scheme has put pressure on Union finance minister Arun Jaitley to say he will consider all objections. He is even facing flak from within his own party and from allies like the Shiv Sena. Mr Jaitley’s argument is that the tax does not apply to employees earning below Rs 15,000 a month and that they, at 30 million strong, form the bulk of the EPF’s 37 million subscribers. He also said he would like people to move to annuity (retirement) plans.
The middle class is up in arms because the EPF is the only saving that most of them have to fall back on in the absence of a security net or any other savings. They don’t buy Mr Jaitley’s objective of trying to push them towards annuity plans where you get a regular stream of income after retirement, and the National Pension Scheme.
However, the trade unions and others are against the very principle of taxing the provident fund at the time of withdrawal as these savings comprise the hard-earned money of workers who put aside a portion of their salaries every month. In addition, they also pay income-tax on their income, and suddenly find the government wants to treat 60 per cent of their savings at the time of withdrawal as income, which also means they are doubly taxed.
Their grouse is that the New Pension Scheme, set up in 2004 and to which all new government employees have to subscribe, is linked to the market and the returns have been poor, unlike the assured interest they get in the EPF and the Public Provident Fund.
The government, however, has its own problems and is literally in a financial straitjacket, having inherited a huge financial mess from the Manmohan Singh government. It is trying to reduce its interest burden of 8.8 per cent on the huge EPF corpus of Rs 6.5 lakh crore. So it is also its self-interest that it is protecting whilst trying to push people towards the NPS.
This is not really a good way to widen the tax net, but the government finds it easier to squeeze the three crore tax-payers as just three per cent of the population pay income-tax. Trade unions argue that people with hordes of unaccounted money get away with 45 per cent penalty on declaring their undisclosed income. Bank defaulters and those responsible for creating the huge non-performing assets that burden banks get away with the banks waiving a huge chunk of what they have to pay. Mr Jaitley has a new problem on his hands.
