Following a serious backlash from salaried workers and employees, the Government of India now seems to be rethinking on the proposal to tax Provident Fund withdrawals. Finance Minister in his budget speech proposed taxing lump-sum withdrawals from Employees Provident Fund (EPF) unless the sum is reinvested in a pension product such as annuity schemes. Estimates suggest that 36 million contribute
Following a serious backlash from salaried workers and employees, the Government of India now seems to be rethinking on the proposal to tax Provident Fund withdrawals. Finance Minister in his budget speech proposed taxing lump-sum withdrawals from Employees Provident Fund (EPF) unless the sum is reinvested in a pension product such as annuity schemes. Estimates suggest that 36 million contribute to the EPF.
The proposal to tax social security funds in any form is certainly considered obnoxious. That too in a budget that did not give any increase in tax exemptions and deductions as salaried millions hoped. The EPF corpus at retirement is now fully exempted.
Meanwhile adding fuel to the fire, the various sections of finance ministry started putting out mutually contradictory statements on a tax proposal that saw an unprecedented backlash. The Union Minister of State for Finance, Jayant Sinha, asked for more time to sort things out indicating a palpable confusion. The Revenue Secretary, Hasmukh Adhia, clarified that the tax proposed is only on the interest on 60 per cent of the contribution and not the full amount.
Hours later the Revenue Secretary clarification came; the official release said there are six million highly paid private sector employees in India in EPF who earn more than 15,000 a month and have accepted EPF voluntarily. For those people, the rules around withdrawal will change. At retirement, 40 per cent of the corpus will be tax free.
A government that chose to offer amnesty yet again for tax evaders wants tax on lifetime savings. Average salaried individuals use this money for the marriage of their daughters or for the education of their children or to have a house of their own at least in the fag-end of their lives. Should the government which gives tax concessions worth trillions every year choose to tax such funds?
A senior citizen should have a right to use his or her savings in a manner that suits their necessities rather than invest in the manner in which the government wants them to do. In fact, this taxation is aimed at diverting people’s savings into speculative pension funds which are now no longer considered fixed return yielding investments.
Why should government channelise middle class savings into ponzi schemes without allowing them to spend in what they conceive as a productive spending? India already suffers from an abysmal state of social security. The EPF corpus is considered as insurance for future. With the emergence of new pension regime, which is often called by critics as No Pension Scheme, the post-retirement landscape for Indians is changing to a life of uncertainty. Taxation now makes the situation much worse.
Meanwhile, the Indian annuity market is still immature giving a choked choice. In fact, salaried classes are the honest tax payers at least by default as they have no avenue to hide their income. Finance Minister’s audacity, if goes unchecked, would prove to be politically disastrous for Prime Minister.