Even as the announced Budget 2016-17 is favouring much the rural sector, few of the tax proposals announced by Finance Minister Arun Jaitley have hit the salaried class hard. This includes 60 per cent of the contributons made after April 1, 2016 to the Employee Provident Fund, Public Provident Fund and National Pension Scheme that will be taxed on withdrawl.
Minister of State (MoS) for Finance Jayant Sinha has said that a clarification will be isssued soon in this regard.
Sinha also said, “We have noted concerns about changes in tax treatment. Full clarification with FAQs will be issued shortly. Have proposed prospective changes in budget. Existing savings are not impacted in any way.”
According to the budget announced by the Finance Minister, the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 per cent of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax.
Any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40 per cent of the annuity, shall be chargeable to tax.
At present, social security schemes run by retirement fund body EPFO are tax free ‘Exempt-Exempt-Exempt (EEE)’ scheme under which deposits, accrual of interest and withdrawals are tax free.
Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.
While announcing the measures for moving towards a pensioned society, Jaitley said, “Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans.”
He added, “I propose to make withdrawal up to 40 per cent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016.”
The minister also said that the annuity fund which goes to the legal heir after the death of the pensioner will not be taxable in all the three cases.
He also proposed a monetary limit for contribution of employer in recognised Provident and Superannuation Fund of Rs 1.5 lakh per annum for taking tax benefit.