After widespread resentment, Finance Minister Arun Jaitley on Tuesday withdrew his budget proposal to tax 60% of provident fund withdrawals made after April 1 this year if they are not re-invested in annuity funds that fetch steady streams of income. In a statement in the Lok Sabha, he also withdrew his budget plan to limit monetary contributions made by an employer in a recognised provident or a superannuating fund to Rs.150,000 per annum to avail tax sops.
However, the 40% tax exemption limit on the national pension scheme stays, Jaitley said.
The move is likely to benefit, among others, nearly 45 lakh members of the employees’ provident fund (EPF) scheme earning over Rs.15,000 per month. The 3.26 crore remaining members of the scheme earning less than Rs.15,000 per month had not been targeted by Jaitley’s original proposal.
The decision was purportedly taken at the behest of Prime Minister Narendra Modi. “The purpose of the proposed reform in tax regime was to encourage more number of private employees to go for pension security after their retirement instead of withdrawing their entire money from their provident fund account,” he said.