HOME > SOCIETY > Income Tax on EPF withdrawal to stay for now

Income Tax on EPF withdrawal to stay for now

budget

The government today issued clarifications on the imposition of income tax when a salaried employee claims his provident fund benefit from his Employees Provident Fund or EPF.

It said the new tax has been imposed to discourage people from withdrawing and spending their pension funds

Under previous rules, money invested in EPF is not taxed, and many salaried employees use this provision to lower their tax rates.

However, under new rules introduced in the Budget, if an employee withdraws 100% of his pension money, 60% of the money so withdrawn will be immediately added to his income for that particular year.

There are some media channels that are reporting that only the interest component will be taxed. That is not correct. 60% of the entire corpus is subject to tax.

This could result in around 30% or so of the taxable portion (60%) being deducted as tax if the person falls into the high tax bracket after including the withdrawn amount in his income.

The finance ministry said it has got a lot of feedback against this provision as typically, withdrawals are made by people at the time of emergencies such as a daughter’s marriage or a son going abroad for education.

The ministry said it is willing to relook at this provision, but did not withdraw the income tax proposal.

“We have received representations today from various sections suggesting that if the amount of 60% of corpus 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.

We have also received representations asking for not having any monetary limit on the employer contribution under EPF, because such a limit is not there in NPS. The Finance Minister would be considering all these suggestions and taking a view on it in due course,” it said.

The move will make tax saving mutual funds more attractive.

The ministry, headed by Arun Jaitley, also said that the new provision will not affect people who earn less than Rs 15,000 per month.

“The main category of people for whom EPF scheme was created are the members of EPFO who are within the statutory wage limit of Rs 15,000 per month. Out of around 3.7 crores contributing members of EPFO as on today, around 3 crore subscribers are in this category. For this category of people, there is not going to be any change in the new dispensation.

“However, in EPFO, there are about 60 lakh contributing members who have accepted EPF voluntarily and they are highly – paid employees of private sector companies.

“For this category of people, amount at present can be withdrawn without any tax liability. We are changing this.

“What we are saying is that such employee can withdraw without tax liability provided he contributes 60% in annuity product so that pension security can be created for him according to his earning level. However, if he chooses not to put any amount in Annuity product the tax would not be charged on 40%,” it said.

The ministry also said that the purpose of this reform of making the change in tax regime is to encourage more number of private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.

“Towards this objective, the Government has announced that Forty Percent(40%) of the total corpus withdrawn at the time of retirement will be tax exempt both under recognised Provident Fund and NPS.

“It is expected that the employees of private companies will place the remaining 60% of the Corpus in Annuity, out of which they can get regular pension. When this 60% of the remaining Corpus is invested in Annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity.

“The Government in this Budget has also made another change which says that when the person investing in Annuity dies and when the original Corpus goes in the hands of his heirs, then again there will be no tax.”

Currently there is no monetary ceilings on the employer contribution under EPF with only ceiling being that it would be 12% of the salary of the employee member. Similarly, there is no monetary ceiling on the employer contribution under NPS, except that it would be 10% of salary.

However, the Finance Bill 2016 provides that there would be monetary ceiling of Rs1.5 lakh on employer contribution considered with the ceiling of the 12% rate of employer contribution, whichever is less.
[socialpoll id=”2337775″]

Follow ULTRA.news
SBI, Canara Bank lead in opening unorganized sector pension accounts State Bank of India has opened the largest number of accounts under India's universal pension scheme for the unorganized sector, the government said today.State Bank of India has opened 51,000 out of the total 3.07 lakh pension accounts opened by banks under the scheme, whic...
SBI waives processing fee on car loans till Dec State Bank of India, India's largest commercial bank, has waived processing charges on car loans till the end of the year, while halving the charge on some personal loans till Sep 30.The bank did not specify the new rates.It already has zero processing fees when someone t...
Indian Railways ticket refunds delayed due to demonetization rush Many people who booked railway tickets worth thousands of rupees during demonetization period and cancelled these tickets for refunds are yet to get their money back.According to Indian Railway sources, many of these people could end up waiting for 90 days or more to get thei...
Administrative charges on employee provident fund cut to 0.65% from 0.85% After keeping the move on hold for three months due to the elections, the Employees' Provident Fund Organization has cut its administrative charges on the funds it manages to 0.65% from 0.85%, according to labor ministry sources.The cut in administrative charges -- which was ...
90% of income tax refunds issued in 60 days, 1.5 lakh cr cleared Income Tax Building, DelhiThe government has cleared 98% of income tax refunds below Rs 50,000 in the current financial year, the finance ministry said.67% of the refunds were issued within one month of filing the return, and 90% were issued within 60 days, the ministry ...
Service Charge in Restaurants: Center says still waiting for industry proposal GST will subsume service tax and VATThe ministry of consumer affairs, food and public distribution is still waiting to hear from the hotel and restaurant industry associations on how they intend to resolve the issue of levying service charges 'unfairly'.The matter had co...
Good time to buy Indian stocks – Morgan Stanley Global financial services major Morgan Stanley said India seemed poised for a five-year growth cycle for equities due to favorable macro-economic factors."India's macro stability remains in its best shape in several years and policy momentum is the best since 2007. Financial ...
75% of our ATMs now working – Canara Bank Karnataka-based public sector bank Canara Bank said 75% of its ATMs have been supplied with cash and are up and working.The statement comes in the wake of widespread difficulty for people to access money via ATMs under the ongoing currency swap.India derecognized 500 ...
Note Exchange: Norms enable households to withdraw over Rs 1 lakh in a day Many bank branches are seeing unprecedented queues of people waiting to exchange their currency notes on Day 1 of the program, despite clear instructions that they can do so at any time over the next 50 days.Many people are waiting outside bank branches worried that if they d...
Finance Ministry holds talks with industry over GST rollout Department of Revenue and Central Board of Excise and Customs (CBEC) have started holding interactive sessions with industry representatives to understand and address the apprehensions and concerns of the various stakeholders about GST and also provide a platform for business...
SBI offers discount on home loan EMIs for government servants State Bank of India, the public sector bank, announced a new scheme under which government and defence employees can get several concessions on home loans including a slower interest rate.Under the scheme, government employees will get an interest rate concession of 5 basis p...
Mahindra Finance gets Mutual Fund license, to focus on rural markets Mahindra Finance said it has received a license to operate Mutual Funds via its subsidiary Mahindra Asset Management Company.Mahindra Finance is currently engaged in vehicle financing, and is part of the Mahindra Group. It plans to tap into its existing network of dealers and...
Shortage of 2 cr houses, but 1.1 cr lying vacant – Naidu India has a shortage of close 1.9 cr housing units in urban areas, but 1.1 cr houses in these areas are lying vacant as their owners do not live in them, nor do they rent it out, pointed out housing minister Venkaiah Naidu.The problem, he said, is being addressed in India...
Pramerica buys Deutsche Bank’s asset management business in India, Dewan Housing to float JV Pramerica Asset Managers, the asset management business in India of Pramerica Investment Management, said it had agreed to buy Deutsche Bank's India asset management business.Separately, Dewan Housing Finance Corporation Ltd also said that it had decided to acquire 50% of the...
One of India’s largest mutual funds lends to Ujjivan microfinance lender Bangalore-based Ujjivan Financial Services has become the first microfinance institution in India to raise funds directly from mutual funds, and that too one of the largest mutual funds in India.It raised Rs 50 cr from an unnamed mutual fund by placing 'commercial paper' (a k...
United Bank of India cuts fixed deposit interest rates United Bank of India has cut its fixed deposit rates by 0.25 percentage points from July 6 onwards.With this, the Bank now offers rates of 7.25% interest for deposits up to 269 days (from 180 days) and up to 7.75% for 270-365 days. Above one year, United Bank of India offers ...
Mutual fund goes light on Bharti Airtel, Idea, ONGC, Cairn India ICICI Prudential, India's fifth biggest mutual fund by equity holdings, increased its cash holdings in May by selling most of its holdings in Bharti Airtel and much of its holdings in ONGC, Crompton Greaves, Cairn India, Hindalco and SJVN, publicly available numbers revealed....
Telecom companies absorb service tax impact – CS Broker Credit Suisse said most Indian telecom companies have absorbed the impact of higher service tax on their accounts, instead of passing it on to customers by raising the price of vouchers."Our quick checks on tariff changes over the last couple of days suggest that telco...
Mutual fund assets cross Rs 12 lakh cr, equity shines The Indian mutual fund industry’s assets under management crossed the Rs 12 trillion mark in February, ending at 12.02 trillion, according to the monthly numbers released by the Association of Mutual Funds in India (AMFI). This is the first time the industry’s assets have crossed...
Mutual Funds hold shares worth over Rs 3.4 lakh crore The Indian mutual fund industry’s assets under management (AUM) rose 12% or by Rs 1.30 trillion in January 2015 to Rs 11.81 trillion, according to the monthly numbers released by the Association of Mutual Funds in India (AMFI).The total shares held by mutual funds in pure eq...
Indiabulls Asset Mgmt to invest Rs 10,000 cr through real estate funds in 5 years Just in case you are one of those people who believe that the Indian real estate market still has upside, Indiabulls Asset Management has launched its maiden real estate fund.The Rs 500-cr fund will invest in residential projects in top 5 cities in India."We plan to scal...
Indians rely highly on cash, real estate to see them through retirement India’s working population relies heavily on cash deposits and second domestic property to generate post-retirement income, according to HSBC’s latest report - The Future of Retirement A balancing act. The report also shows, working people in India believe that buying a h...
ICICI, HDFC, Infosys top Mutual Fund holdings, telecom lags Three of the top four stocks held by mutual funds in India are bank stocks - ICICI Bank Ltd, HDFC Bank Ltd and State Bank of India, with Infosys Ltd being the sole exception.ICICI Bank and HDFC Bank were the top holdings, with ICICI alone accounting for about Rs 14,300 cr...
Gold, Real Estate demand could slow in coming months – Morgan Stanley Demand for gold, real estate and other physical forms of savings in India could decline in the coming months due to an expected fall in inflation, Morgan Stanley said.Gold, oil and real estate prices have risen many fold in the last one to two decades. They have risen faster ...
Mutual fund assets continue to scale new heights Assets under management (AUM) of the Indian mutual fund industry increased 1.45%, or by Rs 131 bn, in February to a record Rs 9.16 trillion, according to the monthly numbers released by the Association of Mutual Funds in India (AMFI). The spurt was primarily due to inflows into i...