Union Government announces to withdraw tax proposal on EPF

March 9, 2016

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

Earlier in the Union Budget 2016-17, Union Finance Minister Arun Jaitley had proposed to tax EPF and NPS withdrawals with an effect from 1 April 2016.
It was announced that 60 percent of the amount deposited in EPF account of the employee would be taxed at the time of withdrawal and remaining 40 percent would be tax free.
However, the budget proposal had provided tax exemption if the employee re-invests 60 percent of the EPF in a pension or annuity fund.
The proposal to tax EPF and NPS withdrawals was made to create a pensioned society, especially among employees in the private sector who have no provision for pension.

What is Employee Provident Fund (EPF)?
The Employee Provident Fund (EPF) is a retirement benefit applicable only to salaried employees. It is a fund to which both the employee and employer contribute fixed amount (percent) of the former’s basic salary amount each month. This percentage is pre-set by the government. At present, the entire EPF amount is tax free at the time of withdrawal if the employee has completed five years of continuous service.

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