Only interest accrued on 60% contribution to EPF to be taxed, PPF contributions remain tax exempt, govt clarifies

After much public outcry regarding Finance Minister Arun Jaitley's announcement in Union Budget to tax Employees Provident Fund (EPF) upon withdrawal, the government has sought to clarify the proposal.

Revenue Secretary Hasmukh Adhia on Tuesday said that "Only interest accrued on 60% contribution to EPF after April 1, 2016 will be taxed. The principal amount to remain tax exempt.

On Monday, in the Budget announcement, the finance minister proposed to being parity among different pension schemes, resulting in a tax on 60% of the withdrawals for contributions to EPF and other schemes made after April 1, 2016. At present, the deposits, the interest and withdrawals of the EPF are tax free as it is an EEE scheme.

There was a lot of backlash from the public at large and the Opposition, given that the tax on EPF withdrawal would have affected retirees. 

Seeking to clarify the confusion over Public Provident Fund (PPF), he said, PPF contributions will continue to be tax exempt and that there is no tax on withdrawal.

On Monday evening, Jayant Sinha, Minister of State for Finance had tweeted that the government had noted the concerns about the tax treatment for EPF/PPF/NPS and will issue a full clarification with FAQs.

1/ We have noted concerns about changes in tax treatment for EPF/PPF/NPS. Full clarification with FAQs will be issued shortly. @adhia03

— Jayant Sinha (@jayantsinha) February 29, 2016

He further allayed people's concerns and urged them to recognise that these were only prospective changes and that existing savings will not be impacted in any way.       

2/ In any case, please recognize that we are only talking about prospective changes. Existing savings are not impacted in any way @adhia03

— Jayant Sinha (@jayantsinha) February 29, 2016

Similarly, Revenue Secretary, Hasmukh Adhia had said he would seek to clarify the confusion too.

Here are some of the reactions on Twitter.

@arunjaitley This is what you are doing to us #RollBackEPF EPF is our right. pic.twitter.com/YznON6Ugx0

— Denesh Nair (@mullandenesh) March 1, 2016

@PMOIndia Please reverse tax on EPF. this is toubling all salaied class and they feel cheated and dissappointed. BJP is distancing salaried.

— T K venkatesh (@venkatesh13tk) March 1, 2016

The attempt to 'clarify' the EPF ruling by MoS Finance and the Secretary show us how clueless this government is on serious matters.

— Sitaram Yechury (@SitaramYechury) March 1, 2016

While the withdrawals on your National Pension Scheme (NPS) will now be partly taxfree, the Employees Provident Fund (EPF) will be now be partly taxed, which is bad news for retirees. The FM's proposal for tax exemption on withdrawal's upto 40% of the corpus of the National Pension Scheme (NPS) is welcome.