The Union Government has announces to withdraw tax proposal on EPF

Union Finance Ministry has announced to withdraw its proposal to tax Employee Provident Fund (EPF) withdrawals. It was announced by the Union Finance Minister Arun Jaitley in Lok Sabha clarifying NDA government’s stand on the issue. However, government has not changed its plan to tax National Pension Scheme (NPS) withdrawal.
Background:

• Earlier in the Union Budget 2016-17, Union Finance Minister Arun Jaitley had proposed to tax Employee Provident Fund & National Pension Scheme withdrawals with an effect from 1st April 2016.


• It was announced that 60 % of the amount deposited in Employee Provedent Fund(EPF) account of the employee would be taxed at the time of withdrawal and remaining 40 % would be tax free.


• However, the budget proposal had provided the tax exemption if the employee reinvests 60% of the Employee Provident Fund in a pension or annuity fund.


• The proposal to tax EPF & NPS withdrawals was made to create a pensioned society, especially among employees in the private sector who have no provision for pension.

What is EPF?

• The Employee Provident Fund (EPF) is a retirement benefit applicable only to the salaried employees.


• It is a fund to which both the employee and the employer contribute fixed amount (percent) of the former’s basic salary amount each month.


• This percentage is pre-set by government. At present, the entire Employee Provident Fund amount is tax free at the time of withdrawal if the employee has completed the 5 years of continuous service.

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The Union Government has announces to withdraw tax proposal on EPF