Under pressure and facing severe criticism, finance minister Arun Jaitley on Tuesday announced a rollback of the proposal in the Union Budget to tax Employees’ Provident Fund (EPF) withdrawals.
Under pressure and facing severe criticism, finance minister Arun Jaitley on Tuesday announced a rollback of the proposal in the Union Budget to tax Employees’ Provident Fund (EPF) withdrawals. He also withdrew the proposal to impose a monetary limit on contributions by employers to the provident and superannuation fund at Rs 1.5 lakh for taking tax benefit.
However, in a major relief to those who are investing in the National Pension System (NPS), Mr Jaitley retained his Budget proposal that 40 per cent of the corpus of NPS subscribers during withdrawal will now be tax exempt.
“A number of representations have been received from various sections of society, including members of Parliament, suggesting that this change will force people to invest in annuity products even if they are not willing to do so,” Mr Jaitley said in a suo motu statement in the Lok Sabha taking back the proposal to tax EPF withdrawals. He said the main argument was that employees should have a choice of 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 people to join the pension scheme,” said Mr Jaitley. He said the government had got various other suggestions, which can also achieve the same policy objective of encouraging people to join the pension scheme.
“In view of the representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposals in para 138 and 139 of my Budget speech,” Mr Jaitley added.
In his 2016-17 Budget, the finance minister had proposed to tax 60 per cent of the corpus of EPF contributions that were created after April 1, 2016 at the time of withdrawal. He had proposed to exempt these from income-tax if the amount was invested in a pension annuity scheme.
The government, however, had faced a huge backlash from the middle and salaried classes that resulted in a rethink in government circles. Last week Prime Minister Narendra Modi had intervened and had asked the finance minister to roll back his proposal. Mr Modi felt it created a negative perception that the move was anti-middle class, sources said.
The BJP welcomed the rollback of the move to tax EPF withdrawals and took a jibe at the Congress after some of its leaders tried to take credit for the government’s rethink, saying that it could claim credit for the passage of the GST Bill and other bills if it agrees to help the treasury benches.
Congress vice-president Rahul Gandhi said the attempt to tax the middle classes’ safety net was “morally” wrong, and that the government was forced to listen to the people and roll back the “patently unfair” tax on EPF. “Finally the Govt was forced to listen to people and roll back the patently unfair tax on EPF. But the attempt to tax the safety net of millions of hard working middle class ppl was morally wrong and shows this Govt’s anti-ppl mindset (sic),” he wrote on Twitter. Terming it a “big victory” for the people of the country, the Congress said the Narendra Modi government had once again “quickly and meekly” caved in to the “pressure exerted by Rahul Gandhi”.
BJP national secretary Shrikant Sharma said: “The BJP welcomes the (government’s) decision to withdraw the proposal. The Budget was hailed across the country for its focus on the common man, poor and farmers but a section was upset with the move to tax EPF. Its withdrawal is a good step.” Mr Sharma then added: “The Congress and Rahul Gandhi can take credit for all decisions. He can take credit for passage of GST and other bills if he lets Parliament function and helps the government in the passage of bills. These are not the bills of the BJP but of the country.”