Prime Minister Narendra Modi will decide on whether the government should reverse a Budget decision to tax withdrawals from the Employees' Provident Fund or EPF, sources said on Tuesday morning after a BJP meeting, as a massive controversy swirled around Finance Minister Arun Jaitley's Monday announcement.
The sources said a complete rollback of the Budget proposal was unlikely, but the government was looking at ways to soften the blow for the 6.5 crore salaried people who contribute to the fund.
The move has been widely criticised and opposition parties have indicated that they want a complete reversal of the decision.
Mid-morning, the government appeared to make a partial retreat when Revenue Secretary Hasmukh Adhia was quoted by news agency Press Trust of India as saying, "The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed."
A government statement in the evening however said taxing interest and not the corpus was only a proposal yet. It said the new Budget provision aims at taxing only the high salaried in the private sector - about 70 lakh people of the 3.7 crore who contribute to the fund. The rest, it said, earn up to Rs 15,000 a month in basic salary and so need to pay no tax on PF withdrawals.
Also, the EPF of all government employees will remain tax free, the ministry said.
What the government has maintained is that while 40 per cent of EPF can be withdrawn tax free, there would be no tax on the other 60 per cent if it is invested in pension annuity schemes. At the meeting of party lawmakers, Mr Jaitley explained that the government wants to encourage people to have a steady income after retirement using the EPF, which is a retirement benefit scheme.
The Budget said the new EPF rules would apply from April 1, 2016. Currently, the entire amount is tax free at the time of withdrawal if the employee has completed five years of continuous service.
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