FM Jaitley defends EPF tax, says move was step to a pensioned society

Finance minister Arun Jaitley on Wednesday defended the government's intent behind taxing employee provident fund withdrawals even as the BJP's allies and rivals raised the pitch for a rollback.

The budget proposed that 40% of an individual's accumulated corpus in the employees' provident fund (EPF) and the National Pension System schemes would not be taxed at the time of withdrawal. This effectively meant that the remaining 60% of the corpus was taxable.

Jaitley said at an event organised by Rajya Sabha TV that the government's intent "was not to raise some revenue from this" but it wanted to "incentivise for a pensioned society".

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However, he said he was considering all the demands and would spell out the decision when he replied to the debate on the budget in Parliament.

Allies Shiv Sena, Akali Dal and TDP "conveyed" their message of disappointment to the BJP brass. "We had reservations about the budget proposal to slap tax, albeit partially, on provident funds. We had raised it at the appropriate platform," Anandrao Adsul, the Shiv Sena's chief whip in the Lok Sabha, told HT.

Within the Sangh Parivar too, there was disquiet. The RSS-affiliated Bharatiya Mazdoor Sangh threatened to escalate its protest. It dubbed the proposed EPF tax as "double taxation" as the gross salary of a salaried individual would already have been taxed.

"We are in discussion with stakeholders. There are many stakeholders. Now I cannot reveal many things. Our government is considering all options," labour minister Bandaru Dattatreya told the Rajya Sabha. "We are in touch with the ministry of finance. Government will also consider these issues. Up to now I can say this."

Tapan Kumar Sen of CPI-M took objection to the minister's claim, saying Dattatreya had not been consulted despite being a key stakeholder. AIADMK MP V Maitreyan said the government decision was "anti-working class".

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Naveen Patnaik's BJD, otherwise supportive of the government, was opposed to the proposal. "We heard there would be a partial rollback of the tax proposals on PF. But we want a full rollback. There should not be any tax on the PF money of the common man," the BJD's Lok Sabha leader Bhartruhari Mahtab told HT.

The move that could impact seven million private sector employees triggered howls of protest from subscribers and labour unions that termed it anti-worker. At present, withdrawal from the EPF is entirely tax-free.

The government on Tuesday moved into damage control mode, hinting that it was open to modifying the rule to tax only the interest earned on 60% of the EPF contributions made after April 1, 2016.

"We have received representations today from various sections suggesting that if the amount of 60% of corpus is not invested in annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount," the finance ministry said on Tuesday.

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