Finance Minister Arun Jaitley today said the government will roll back its Budget proposal that sought to levy tax on withdrawal of funds from Employee Provident Fund (EPF).
The move, he said, was taken in keeping with feedback recieved after the move's announcement. The proposal had led to a furore amongst salaried class and was termed as regressive by many.
"In view of the representations received, the government would like to do comprehensive review of this proposal and therefore I withdraw the proposals in para 138 and 139 on my budget speech. The proposal of 40 per cent exemption given to NPS subscribers at the time of withdrawal remains," the Minister said
The Minister had earlier indicated that he would address the concerns on retirement tax when he replies to the debate on Budget 2016-17 in Parliament
In his Budget for 2016-17, Jaitley had proposed to tax 60 percent of the corpus of the EPF contributions created after April 1, 2016 at the time of withdrawal. He proposed to exempt these from income tax if the amount was invested in pension annuity scheme.
The proposal came under immediate fire from both employee unions and political parties who said the government was taxing employee when they need the funds most.
The government justified the move saying the attempt was to create a pensioned society and encourage employees to invest their savings in annuities.
A day after the Budget, it had indicated in a statement that it could consider imposing the tax only on the interest part of the corpus.
But today's decision withdraws the proposal lock-stock-and-barrel.
In his statement, Jaitley said a number of representations had been received from various sections of the society including MPs suggesting that this change would force people to invest in annuity product even if they are not willing to do so.
"The main argument is that the employee should have choice of desire where to invest. Theoretically, such freedom is desirable but it is important for the government to achieve policy objectives by the instrumentality of taxation.
"In the present reform the policy objective is not to get more revenue but to encourage the people to join the pension scheme. There are various suggestions received, which can also achieve the same policy objective of encouraging people to join the pension scheme," he said in the statement.
More to come.