Government Rolls Back Its Proposal To Tax EPF Withdrawals

After facing a strong backlash from salaried class, the opposition and labour unions, the government has rolled back its proposal to tax withdrawal from employee provident fund (EPF).

Finance minister Arun Jaitley told Lok Sabha, “In view of the representation received, the government would like to do a comprehensive review of this proposal and, therefore, I withdraw this proposal.”

In the budget 2016-17 that was presented on February 29, the government announced to tax 60 percent of EPF withdrawal.
Finance minister Arun Jaitley HT

Finance minister Arun Jaitley

Jaitley had earlier proposed that while 40 percent of the EPF withdrawal would be tax exempt, the remaining portion would be taxable.

Explaining the rationale behind it, Jaitley had said, “Employees should have the choice of where to invest. Theoretically such freedom is desirable, but it is important the government achieve policy objective by an instrumentality of taxation. In the present form, the policy objective is not to get more revenue but to encourage people to join the pension scheme.”

Reason behind taxing EPF was to encourage people to join Pension Scheme Hindu

However, the government was slammed for its move. Congress vice president Rahul Gandhi reacted to the development in Parliament, saying, “I felt middle-class people were being hurt by the government, so I decided to put some pressure. Happy that they’ve got some relief.”
Salaried people deposit a certain amount to their EPF account every month and the company adds 12 percent to it. The withdrawal from the EPF is entirely tax-free.

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