New Delhi: In a bad news for those who were investing in PPF and EPF for their retirement, finance minister Arun Jaitley on Friday proposed to tax their returns on maturity.
Now 60 per cent of the corpus of PPF and EPF created out of contributions made after April 1 will be taxable. However, those who are investing in new pension scheme (NPS) withdrawal up to 40 per cent of the corpus at the time of retirement will be tax-exempt. The aim is to give similar tax treatment to all pension schemes.
“Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans,” said Mr Jaitley while presenting the Union Budget.
Economic Survey 2015-16 had said that most of the tax benefits of the PPF are enjoyed by the super-rich, which it had pegged at Rs 11,900 crore.
“I propose to make withdrawal up to 40 per cent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme,” he said.
“In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016,” said Mr Jaitley.
However, the tax on withdrawal, experts say, will apply only on the corpus created through contributions made after April 1, 2016. This rule will not apply for corpus created before March 31, 2016.
Revenue secretary Hasmukh Adhia clarified that there would be no tax on the remaining 60 per cent if it is invested in annuity (pension) products for earning regular income.
Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all these three cases. “Also, we are proposing a monetary limit for contribution of employer in recognised provident and superannuation fund of Rs 1.5 lakh per annum for taking tax benefit,” said Mr Jaitley.
He proposed to exempt from service tax the annuity services provided by the National Pension System (NPS) and services provided by EPFO to employees.
“I also propose to reduce service tax on single premium annuity (insurance) policies from 3.5 per cent to 1.4 per cent of the premium paid in certain cases,” said the finance minister.
Finance minister hikes Robinhood tax to 15 per cent
Finance minister Arun Jaitley, who played the pro-poor card to the hilt in his budget, emerged as an Indian Robinhood, by increasing the surcharge on the super-rich having an annual income of over Rs 1 crore by three per cent to 15 per cent.
Unveiling the Union Budget for 2016-17, Mr Jaitley said he proposes to “raise the surcharge from 12 per cent to 15 per cent on persons, other than companies, firms and cooperative societies having income above Rs 1 crore”.
He, however, left the current income tax slabs unchanged. A surcharge of 10 per cent on taxable income of Rs 1 crore and above was imposed in 2013-14 by the then finance minister P. Chidambaram. In the last Budget, Mr Jaitley had abolished the wealth tax and replaced it with an additional surcharge of two per cent on the super-rich with a taxable income of over Rs 1 crore.
After the 2008 economic slowdown, super rich have been under greater scrutiny because of the growing inequality. Following the protests, legendary US investor Warren Buffett asked US Congress to increase taxes on super-rich multiple times and asked his billionaire friends to pay more.
