Since the time curtains were raised by India’s Finance Minister Mr. Arun Jaitley from the much awaited Budget 2016 on Monday, February 29, 2016 there has been a buzz over the social media to withdraw it. Salaried employees have raised their concern on deduction of tax on EPF, other provident funds and hit back on the government. Petitions are being filed and hashtags like #epfnotax etc. are trending.
As per the Budget 2016, the Employee Provident Fund (EPF) when withdrawn at the time of retirement (age 58) will be treated for being 40% as tax free and remaining 60% being taxable with effect from April 1, 2016. The accumulated amount in EPF is attributed as the sum total of money invested by employee plus the interest. In financial terms, this total sum accrued over the years is called Corpus.
Prior to the announcement of Budget 2016, EPF followed the EEE i.e. the ‘Exempt Exempt Exempt’ principle. This means all the EPF- constituting the invested amount, interest and corpus were exempted from tax. Whereas, starting April 1, 2016 EPF will fall under EET principle that denotes ‘Exempt Exempt Tax’. As per the new rules, the invested amount and interest will remain tax free but 60% of the corpus will be levied upon withdrawal. This 60% of corpus will however be tax free if invested in annuity. Any investments before April 1, 2016 will not be affected as a result of this change.
The common salaried employees are now concerned about why this tax on their hard earned savings is being imposed when they are already paying tax on their income, professional tax, tax on bonus and incentives etc. The sheer savings that used to be a relief for a secured future by now will hereafter turn out to be as stressful as the intricate income tax procedures.
Whether to invest the EPF amount after retirement/ withdrawal into annuity, buy a home or pay for children’s education should only be a choice of employee. The salaried employees are left in awe with the new declarations in Budget 2016 and can only hope for amendments in the fine print. If not, at least the LIC and other insurance agents will succeed in selling ample of investment plans to the citizens of our country.
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