Withdrawing EPF tax

Withdrawing EPF tax: The government’s announcement that it would like to do a “comprehensive review” of taxing Employees’ Provident Fund denies an opportunity to Parliament to take an informed view on the government’s pl



The Hindu, March 10, 2016

March 9, 2016
Tax on retirement benefits*

This refers to the report “Backlash forces Jaitley to withdraw EPF tax  ” (March 9).  While making a statement withdrawing paragraphs 138 and 139 of his budget speech, FM mentioned that the government would like to do a comprehensive review of this proposal (mentioned in paragraphs 138 and 139). In a way, the unusual way in which the proposal has been rolled back denied an opportunity for parliament to take an informed view on the government’s plan to ‘move towards a pensioned society’.

The blame for this should be shared equally by government (for coming forward with measures without considering all implications) and the opposition (which tried to claim credit for defeating a government proposal, without waiting for the debate on the finance bill in parliament for expressing its considered views).
Let us hope, a parliamentary committee supported by expert views will now go into the pros and cons of all initiatives taken since 2003 when New Pension Scheme (the present National Pension System) was introduced through an executive order without any legislative sanction. Of course, there was no opposition to the move, as the NPS was made applicable to employees joining service after introduction of the scheme!
It will be in the interest of smooth implementation of all retirement savings schemes to make them tax-free. This is not asking for the moon and is consistent with the government’s approach of making dividends tax-free in the hands of payees. If there is a will, there is a way. Government can, when there is a need, tax the return on investments made by fund managers which will have an impact on the earnings on retirement corpus of savers. But all these should not   end up in diverting regular retirement savings to insecure financial instruments or reducing return on such savings
invested in long term savings instruments like PF and pension funds or insurance by savers. Such an eventuality will have adverse implications for future savings pattern and more significantly on social security schemes in general.
M G Warrier, Mumbai

*Submitted version. Use link to read published version.

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