Finance Minister Arun Jaitley said that the government would take a final decision on his budget proposal to tax 60 per cent of employees’ provident fund (EPF) savings of those earning over Rs.15,000 per month, before it responds on the issue during a debate on the Finance Bill in Parliament.
“We will respond in Parliament in the discussion on our decision,” Mr. Jaitley said on Wednesday morning at a post-Budget interactive session with representatives of Indian trade and industry associations, including CII, FICCI and Assocham.
The finance ministry had issued a clarification on Tuesday that EPF savings won’t be taxed at retirement, if the retiring employee opts to use 60 per cent of his EPF account balance to buy an annuity product that provides them a monthly pension. The Budget had announced that 40 per cent of EPF savings will be tax-free at the time of withdrawal on retirement. Till now, EPF savings are tax-exempt at the time of retirement.
Mr. Jaitley said that the tax proposal was not aimed at revenue generation, but help everyone get a pension in their old age.
“The balance 60 per cent (of EPF savings) if converted to annuity and used for a regular pension will not be taxed. The objective is to incentivise people to get pension and disincentivise consumption of savings,” he said.
Stressing that the proposal would only impact high-income private sector employees, the minister said that nearly three crore active EPF members receive monthly salaries of less than Rs.15,000 and would not be affected by the tax.