• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Home
  • DOPT ORDERS 2020
  • FinMin Orders 2020
  • Railway Orders 2020
  • Contact Us

7th Pay Commission Latest news

Central Government Employees News

  • DOPPW Orders
  • 7th Pay Commission
  • Dearness Allowance
  • Dearness Relief
  • CSD Price List
  • Defence
    • Defence Pension
You are here: Home / Union Budget 2016-17 / Budget 2016 – The EPF tax will cost you, but not as much as you thought.

Budget 2016 – The EPF tax will cost you, but not as much as you thought.

March 2, 2016 pcadmin Leave a Comment

Now that retirement products and their design are on the table, it is a good time for the finance ministry to think through the entire retirement landscape at a much more conceptual level

The controversy around Employees’ Provident Fund (EPF) began two weeks back, and not on Monday, when it was announced that the withdrawal rules will change. With effect from 10 February, a labour ministry amendment has capped what you can withdraw from your EPF corpus before you retire. Before 10 February, you could have withdrawn your entire EPF corpus if unemployed for more than two months. Before EPF portability, each time you moved jobs and got a new EPF number, you could clean out your PF money from the previous employer. The new rules allow you to withdraw your contribution and the interest on it before retirement, but the employer’s contribution is locked in till age 58. On Saturday last week, I accidentally stepped into an ongoing conversation about the change in EPF rules on Twitter. Read the debate on my twitter handle @monikahalan on 28 February 2016 around this. People were angry at getting locked into the product and wanted greater flexibility.

If the reaction to withdrawal restrictions was sharp, post-budget the social media outpouring by Middle India was loud and acrimonious. The budget did not give any increase in tax exemptions and deductions, but did the unthinkable—tax the fully tax-exempt EPF corpus at retirement. The announcement put the tax on 60% of the corpus, leaving 40% tax-free. The uproar after the announcement saw some knee-jerk reactions by various parts of the finance ministry. The Twitter handle of Minister of State for Finance, Jayant Sinha, was active till late on Monday night asking for time to sort things out. On Tuesday, revenue secretary Hasmukh Adhia was quoted by Press Trust of India clarifying that the tax was only on the interest on 60% of the contribution and not the full amount. And then, hours later, a Press Information Bureau press release (see it here: http://mintne.ws/1RD5wCV ) took us back to the beginning. According to the release, there are 6 million “highly-paid” private sector employees in EPF who earn more than Rs.15,000 a month and have accepted EPF voluntarily. For those people, the rules around withdrawal will change. At retirement, 40% of the corpus will be tax-free. If the rest, that is 60%, is used to buy an annuity, there is no tax. Income from the annuity will be taxed each year at slab level (no change in this). But if the rich EPF subscriber wants his 60% as a lump sum, there will be a tax on it. The release leaves what will get taxed unclear. If the entire 60% corpus is taxed at a top slab rate of 30.9%, the average tax on the entire corpus comes to 18.54%. If just the interest on 60% of the contribution gets taxed, then the tax will be small. Mint got a confirmation (http://mintne.ws/1RhOnMs) from the revenue secretary that it will be just the interest that will be taxed and not the full 60% corpus. We ran some numbers to see what the tax looks like (http://mintne.ws/1XY01kG). Suppose a person joins in the next fiscal and sees a salary growth of 10% a year for the next 40 years. Assume that EPF interest remains a steady 8% over this 40-year period. Unrealistic, I know, but we need to assume something for a back-of-the-envelope calculation. A tax on the interest corpus at 30.9% works out to an average tax rate of 12% on the entire corpus.

To understand the uproar over the EPF tax and Middle India’s anger, you must understand the role of this forced silent saving in the life of an average salaried person in India. Fathers got their daughters married by breaking their PF before retirement. Sons swindled out their dads’ PF accounts to start businesses. Whatever survived was the money that would go into buying a home and running the house. Often, the money is not enough, but it is a significant lump sum that allows a person some choices in his old age. The fact that this was a forced compulsory saving made the corpus creation automatic and far from the reach of ponzi masters that abound. The almost-religious fervour around EPF needs to be seen in the context of a lack of social security net in India and the dismal state of the public health system. For Middle India, in a cruel world that taxes the honest, the EPF corpus is one true friend.

Now that retirement products and their design are on the table, it is a good time for the finance ministry to think through the entire retirement landscape at a much more conceptual level. One, use insights from behavioural economists to make it an opt-out product, with a default opt-in. This means that you are automatically put into a pension plan unless you opt out. Already for those who are getting a job for the first time and earn a monthly salary above Rs.15,000, the opt-out system exists but remains unused due to companies not allowing it. There is a need to make opt-out effective and on-going. Two, make the National Pension System (NPS) and EPF portable. Right now, this again exists on paper but the road is not clear of clutter yet. Three, develop the annuity market for a viable choice. Today, the annuity market is undeveloped with a poor choice set.

Source : livemint

Filed Under: Union Budget 2016-17

Also Read

Union Budget 2023 : Live Updates

Union Budget 2023 : Live Updates

February 1, 2023 By pcadmin Leave a Comment

Union Budget 2023 : Live Updates 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐭𝐡𝐞 𝐟𝐢𝐫𝐬𝐭 𝐛𝐮𝐝𝐠𝐞𝐭 𝐢𝐧 𝐀𝐦𝐫𝐢𝐭 𝐊𝐚𝐚𝐥. Budget focuses on 7 priorities, ‘saptrishi guiding us through Amrit Kaal’ This budget hopes to build on the foundation laid in the previous budget and the blueprint drawn at India at 100. … [Read More...] about Union Budget 2023 : Live Updates

AICPIN for the month of December 2022

AICPIN for the month of December 2022

February 1, 2023 By pcadmin Leave a Comment

AICPIN for the month of December 2022 Consumer Price Index for Industrial Workers for December, 2022 The Labour Bureau, an attached office of the Ministry of Labour & Employment, has been compiling Consumer Price Index for Industrial Workers every month on the basis of retail prices … [Read More...] about AICPIN for the month of December 2022

One Rank One Pension to the Defence Forces Pensioners. orop

One Rank One Pension to the Defence Forces Pensioners.

January 24, 2023 By pcadmin Leave a Comment

One Rank One Pension to the Defence Forces Pensioners. No. 1(1)/2019/D(Pen/Pol)/Vol-IIGovernment of IndiaMinistry of DefenceDepartment of Ex-Servicemen Welfare New Delhi, Dated: 20th January 2023 ToThe Chief of the Defence StaffThe Chief of the Army StaffThe Chief of the Naval StaffThe … [Read More...] about One Rank One Pension to the Defence Forces Pensioners.

Addendum for early closure of all the offices falling in the premises of Parliament House & Rashtrapati Bhawan in c/w forthcoming Republic Day

Addendum for early closure of all the offices falling in the premises of Parliament House & Rashtrapati Bhawan in c/w forthcoming Republic Day

January 23, 2023 By pcadmin Leave a Comment

Addendum for early closure of all the offices falling in the premises of Parliament House & Rashtrapati Bhawan in c/w forthcoming Republic Day No.16/3/2023-JCAGovernment of IndiaMinistry of Personnel Public Grievances and Pensions(Department of Personnel and Training)Establishment (JCA) … [Read More...] about Addendum for early closure of all the offices falling in the premises of Parliament House & Rashtrapati Bhawan in c/w forthcoming Republic Day

Linking of CGHS Beneficiary ID with the ABHA ID

Linking of CGHS Beneficiary ID with the ABHA ID

January 20, 2023 By pcadmin Leave a Comment

Linking of CGHS Beneficiary ID with the ABHA ID F.No. 44/67/MCTC/CGHSGovernment of IndiaMinistry of Health & Family WelfareDepartment of Health & Family Welfare Nirman Bhawan, New DelhiDated the January, 2023 OFFICE MEMORANDUM SUBJECT: Linking of CGHS Beneficiary ID with the ABHA … [Read More...] about Linking of CGHS Beneficiary ID with the ABHA ID

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

All About Pension

All about Pension

Latest DOPT Orders

Addendum for early closure of all the offices falling in the premises of Parliament House & Rashtrapati Bhawan in c/w forthcoming Republic Day

Early Closure of Offices in connection with Republic Day Parade/Beating Retreat Ceremony/At Home Function during January, 2023

Review of CSS Officers (Under Secretary) under FR 56(j) and Rule 48 of CCS (Pension) Rules, 1972

Year-End- Review of DoPT(Ministry of Personnel, Public Grievances & Pensions)-2022

Extension of the LTC block year 2018-21 (extended) for a period of three months

Latest Finmin Orders

Compendium of Instructions regarding grant of House Rent Allowance to Central Government employees – FINMIN

CGEGIS 1980: Table of Benefits of saving funds from Oct to Dec 2022

Non-Productivity Linked Bonus (ad-hoc bonus) to Central Government Employees for 2021-22

FINMIN : Dearness Allowance to Central Government employees effective from 01.07.2022.

Compendium of Instructions regarding grant of Transport Allowance at double the normal rates to persons with disabilities employed in Central Government

Latest Railway Orders

Implementation of Railway Services (Revised Pay) Rules, 2016

Computer Advance Interest Rate 2022-23 for Railway Employees

Eligibility of married disabled child for family pension – Railway Board order

Grant of Leave to Probationary officers: Railway Board

Productivity Linked Bonus to all eligible non-gazetted Railway employees for 2020-2021

Categories

Copyright © 2023