Facing wrath from all quarters after Finance Minister Arun Jaitley announced that 60 percent of the employee contribution to Provident Fund will be taxed on withdrawal, Minister of State for Finance Jayant Sinha said a clarification will be issued soon.
"We have noted concerns about changes in tax treatment. Full clarification with FAQs will be issued shortly. Have proposed prospective changes in Budget. Existing savings are not impacted in any way," Sinha said.
As per the Union Budget announced on Monday, the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 percent of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax.
Any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40 percent of the annuity, shall be chargeable to tax.
At present, social security schemes run by retirement fund body EPFO are tax free 'Exempt-Exempt-Exempt (EEE)' scheme under which deposits, accrual of interest and withdrawals are tax free.
Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.
Government has also proposed that 14 percent service tax on services provided by Employees' Provident Fund Organisation (EPFO) to employees, being exempted, with effect April, 2016.
The Budget has also proposed to increase the threshold for deducting tax deducted at source (TDS) on payment of accumulated balance due to an employee in EPF Rs 50,000 from existing Rs 30,000.
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