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Don't put your fingers in our till, Mr FM

The Union government has once again invited the wrath of the working class with its proposal to tax withdrawals made from EPF.

Finance Minister Arun Jaitley seems to have made a bad miscalculation in proposing to tax a large portion of the Employees’ Provident Fund (EPF) savings on withdrawal, a fund that is for most salaried people a precious nest egg post-retirement. Notwithstanding the clarifications issued and concessions made on Tuesday, the government’s intention is being seen as suspect. A thoughtless bid to gather revenue in an otherwise thoughtful budget?

The Union government, which is often accused of diluting the labour laws to help further the hire and fire policies of the corporate world, has once again invited the wrath of the working class with its proposal to tax withdrawals made from the Employees Provident Fund (EPF).

Though the finance ministry on Tuesday clarified that only interest on 60 per cent of the PF withdrawals made after April 1, 2016 will be taxed, the salaried class is on the warpath, pointing out that there is already tax deduction at source .

Upset with the new tax proposal several employees launched an online petition on change.org under the title “Withdraw Budget 2016 proposal to tax Employee Providend Fund (EPF)” and received more than 10,000 signatures within 24 hours, making it one of the highly trending petitions on the site. The proposal particularly hits Bengalureans hard as the city with over a 15 lakh workforce sees the largest PF withdrawals owing to the fact that job attrition is highest here in the country.

Experts in the field note that EPF is a very sensitive issue as far as the middle class is concerned, and by attempting to tax it, finance minister, Arun Jaitley may have touched a raw nerve. An officer of the state labour department says labour unrest is bound to brew across the country due to the proposal. “Even a few years ago when the then UPA government proposed some reforms in EPF contribution and investment, it faced a backlash. Whatever may be the clarification by the Union finance ministry now, it could face strong resistance from the labour class to its current proposal,” he warns.

It’s not just the labour class, which is unhappy, but also corporate employees, who took to their micro blogging sites and the social media to express their disapproval and demand a roll- back of the proposal. It all now depends on how the government responds to the hue and cry. Will it come out with a win-win formula or decide to stick it out no matter what the opposition? Only time will tell.

Step taken to ensure employees make best use of their funds: FM
The Union finance ministry took pains to explain its decision to tax EPF withdrawals on Tuesday saying it was only doing it in the interest of employees to ensure that they made best use of the fund. It also promised to consider all the points raised against the proposal. The clarification was as follows:
There seems to be some amount of lack of understanding about the changes made in the General Budget 2016-17 in the tax treatment for recognised Provident Fund & NPS.
The following clarifications are given in this matter:

(i) The purpose of this reform is to encourage a greater number of private sector employees to go in for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.
(ii) Towards this objective, the government has announced that forty per cent (40%) of the total corpus withdrawn at the time of retirement will be tax exempt both under recognised Provident Fund and NPS.
(iii) It is expected that the employees of private companies will place the remaining 60 per cent of the corpus in annuity, out of which they can get regular pension. When this 60 per cent 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.
(iv) 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 into the hands of his heirs, then again there will be no tax.
(v) The idea behind this mechanism is to encourage people to invest in pension products rather than withdraw and use the entire corpus after retirement.
(vi) 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.
(vii) 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 an employee can withdraw without tax liability provided he contributes 60 per cent 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 per cent.
(viii) There is no change in the existing tax treatment of Public Provident Fund (PPF).
(ix) Currently there is no monetary ceilings on the employer contribution under EPF with only ceiling being that it would be 12 per cent 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 per cent of salary.
(x) Now the Finance Bill 2016 provides that there would be monetary ceiling of Rs 1.5 lakh on employer contribution considered with the ceiling of the 12 per cent rate of employer contribution, whichever is less.
(xi) We have received representations today from various sections suggesting that if the amount of 60 per cent 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.

Taxing withdrawals from EPF is an anti-labour move: Meenakshi Sundaram secretary, CITU, Karnataka
It is an anti- labour move. An Employees Provident Fund (EPF) account is not like a Savings Bank account. People save money in the EPF so it can come to their rescue in difficult times. It is unfair to tax the interest accumulated on these savings. Adding to this, the government has allowed private entities to enter into pension schemes and the FDI. By proposing tax on EPF, the Union government is trying to encourage employees to move to pension schemes which will be beneficial to private players.

Also, people often change their EPF account with a change in job for several reasons, including lack of cooperation from their employers. This means they must withdraw their savings several times. There is a need to educate both employees and the employers on having a single EPF account. When the EPF system requires reforms, instead of offering solutions to the existing problems, the Union government has proposed to tax it.

It has also announced that it will bear the EPF amount of start-ups for three years. This is condemnable. Why should public money be used to pay the EPF of private players? The government must also rethink this proposal.

( Source : Deccan Chronicle. )
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