In a move which will give relief to lakhs of salaried taxpayers, Prime Minister Narendra Modi has asked FM Arun Jaitley to reconsider the proposed amendments in the Budget under which Employees Provident Fund withdrawal will be taxed.
The matter has been making headlines since FM Jaitley proposed 60 per cent tax on EPF withdrawal. Trade unions and salaried employees have vehemently opposed the proposal which would reduce their retirement savings.
According to sources, PM Modi has asked his Cabinet colleague to rollback the tax proposal.
Ever since the tax proposal was made, finance ministry has been flooded with suggestions and representations on the topic. The industry had suggested that if 60 per cent of corpus under recognised Provident Fund is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount.
Finance Minister Arun Jaitley has in his Budget for 2016-17 proposed taxing 60 per cent of withdrawals from the Employee Provident Fund (EPF) on contributions to be made after April 1, unless the sum is reinvested in pension product such as an annuity.
Towards this end, the Finance Minister had announced that 40 per cent of the total corpus withdrawn at the time of retirement will be tax exempt both under recognised Provident Fund and NPS, he pointed out.
The Finance Ministry had expected that the employees of private companies would place the remaining 60 per cent of the corpus in annuity, out of which they can get regular pension.
The entire corpus will be tax free if invested in annuity.
