Budget 2016: Jaitley googly? Hazy wording hints future PF money may be taxed

Arnav PandyaA provision related to the receipt of money at the time of withdrawal from various retirement planning options can cause some tax troubles for individuals in the coming days. On one side the good news is that the budget says that 40 per cent of the amount that is received from the National Pension System (NPS) would be exempt and the remaining amount would be considered for the purpose of taxation. This is a benefit because currently the entire amount of receipt is taxed as income.On the other hand in order to bring parity between various other instruments and the NPS there is a proposal to exempt 40 per cent of the receipt from a superannuation fund and a withdrawal from the Employees Provident Fund (EPF) and tax the remaining amount. This would be applicable only for contributions made after April 1, 2016. This means that existing amounts are saved from this kind of taxation and hence the entire amount is tax free but for the accumulation on the newer contributions there will be an element that will be taxable. The wording used is withdrawal on the contribution of the employee so there is no clarity on whether the earning on this will be included for the taxation working. Also this would not be applicable for excluded employees who are those with a lower level of income and hence would be applicable for higher income level employees only. This is likely to have a large implication because newer contributions when withdrawn would be taxable in part and this would mean elimination of the exempt, exempt, exempt status that is currently enjoyed by the amounts received from the Employees Provident Fund.(The author is a Certified Financial Planner and a regular contributor to moneycontrol)