New Delhi: Budget 2016 proposes to tax part of Employee Provident Fund (EPF) withdrawals from April 1, 2016, a move that will disappoint nearly six crore people.
"In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016," said Finance Minister Arun Jaitley in his budget speech.
Currently, withdrawals from Employee Provident Fund are completely exempt from income tax after five years of continuous service, but once the new measure kicks in, employees will have to pay income tax on 60 per cent of withdrawal amount from EPF. The remaining 40 per cent will be tax free, said experts on NDTV Profit.
The tax on EPF withdrawal will be charged according to tax slab of the employees, analysts say.
EPFO manages a corpus of around Rs. 6.5 lakh crore with a subscribers base of around six crore.
"This has been done with the aim of aligning the tax treatment of long-term retirement products... it will be applicable to contributions made after 1 April 2016," says Parizad Sirwalla, National Head-Global Mobility Services-Tax, KPMG.
Analysts say that the move is aimed at encouraging the salaried class to remain invested in the retirement fund and later on invest the kitty in annuity (pension) products to earn regular income.
The finance minister also announced that investors in the New Pension Scheme (NPS) will be extended the same tax treatment as EPF. This means that withdrawals from NPS, which came under the ambit of income tax, will be partially tax free. So, 60 per cent of NPS withdrawal will be taxed, while the remaining would be tax free from April 1, 2016.
"In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016," said Finance Minister Arun Jaitley in his budget speech.
Currently, withdrawals from Employee Provident Fund are completely exempt from income tax after five years of continuous service, but once the new measure kicks in, employees will have to pay income tax on 60 per cent of withdrawal amount from EPF. The remaining 40 per cent will be tax free, said experts on NDTV Profit.
The tax on EPF withdrawal will be charged according to tax slab of the employees, analysts say.
EPFO manages a corpus of around Rs. 6.5 lakh crore with a subscribers base of around six crore.
"This has been done with the aim of aligning the tax treatment of long-term retirement products... it will be applicable to contributions made after 1 April 2016," says Parizad Sirwalla, National Head-Global Mobility Services-Tax, KPMG.
Analysts say that the move is aimed at encouraging the salaried class to remain invested in the retirement fund and later on invest the kitty in annuity (pension) products to earn regular income.
The finance minister also announced that investors in the New Pension Scheme (NPS) will be extended the same tax treatment as EPF. This means that withdrawals from NPS, which came under the ambit of income tax, will be partially tax free. So, 60 per cent of NPS withdrawal will be taxed, while the remaining would be tax free from April 1, 2016.
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