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Last Updated : Mar 02, 2016 09:51 AM IST | Source: Moneycontrol.com

No tax on PPF withdrawal; only interest to be taxed in EPF: Govt

Hasmukh Adhia also said that only the interest accrued on 60 percent contribution to Employee Provident Fund (EPF) after April 1, 2016 will be taxed while the principal amount will continue to remain exempted from tax.


The government today has clarified that the popular public provident fund (PPF) scheme will continue to stay out of the tax ambit and that tax will be levied only on accrued interest on 60 percent of employee provident fund (EPF) contribution.


This was confirmed by Revenue Secretary Hasmukh Adhia who spoke to PTI, a day after the Union Budget set the cat among the pigeons when the Finance Minister vaguely referred to tax being referred to PF schemes.


Further, small salaried employees with up to Rs 15,000/month income will be kept out of purview of proposed taxation of EPF, he said.


Following a public outcry, Minister of State for Finance told IBNLive that detailed guidelines will be issued shortly.


"In case of superannuation funds and recognized provident funds, including EPF, the norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016," Finance Minister Arun Jaitley had said in the Budget speech yesterday, noting that the aim was bring superannuation and provident funds in line with the National Pension Scheme's tax structure.


So far, the PPF and EPF have enjoyed the exempt-exempt-exempt (EEE) status, implying no tax will be levied at the stages of investment, interest payout and withdrawal. NPS, on the other hand, has been under the EET tax structure. Experts believe that the differential tax structure has impaired NPS' growth.


The government has so far not clarified what the tax rate would be.

A back of the envelope calculation suggests that for a yearly contribution of Rs 60,000 (Rs 5,000 per month) into the EPF, an employee will incur tax of Rs 288, Rs 576 and Rs 864 -- Rs 60,000 x 0.6 (only 60 percent of contribution) x 0.08 (assuming 8 percent interest) x 0.1/0.2/0.3 -- for employees in the 10 percent/20 percent/30 percent tax slabs.



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First Published on Mar 1, 2016 12:38 pm
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