Heres how much you will pay for EPF tax? All you want to know
March, 02nd 2016
EPF tax on withdrawal: After Arun Jaitley Budget 2016 sparked a furious reaction across India, especially in the middle class, for imposing an EPF tax at the withdrawal stage a lot of sound and fury has been generated but very little light has been shed about how much will income taxpayers finally end up paying. Is the amount humongous, or is it tiny. Or somewhere in between? How badly will it affect a taxpayer's life after retirment? In short, what will they end up paying on EPF tax on withdrawal? Here is all you want to know about what you will pay courtesy Arun Jaitley Budget 2016 EPF tax blow:
EPF tax row: EPF has so far been EEE, or Exempt-Exempt-Exempt EPF is categorised as EEE, which means that the investment in the EPF is tax-free at all the three stages of investing, interest accumulation, and withdrawal. The EEE status is also available to Public Provident Fund, equity linked savings schemes and life insurance policies. (Reuters)
EPF tax on withdrawal: The PM Narendra Modi led NDA government says it will bring parity among provident fund, pension funds and the National Pension System (NPS). Experts say that this will allow investors to choose a product based on the returns they generate and the risk exposure they carry, and not on the basis of the tax benefit they offer.
EPF tax row: What is the government’s rationale for doing this? Announcing the imposition of tax on 60% of the withdrawal amount from EPF, the government in its Budget document argued that it was being done to bring greater parity in the tax treatment of different types of pension plans. However, in its clarification issued on Tuesday, the government said, “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
EPF tax row: How does Budget 2016 announcement change outlook of investors? The PM Narendra Modi government has specifically said that the contributions made until March 31, 2016 will attract no tax at the time of withdrawal. It will be only applicable on contributions made on or after April 1, 2016. Since 60% of the future contributions and interest earnings on them will be taxed at the time of withdrawal, it will impact investors who plan to pull the entire corpus at the time of retirement. However, it will not impact those who plan to buy an annuity product out of the 60 per cent of the corpus (from an insurance company), for getting regular pension after retirement. (Reuters)