Adding further confusion over tax treatment of provident fund contributions proposed in the Union Budget, the finance ministry on Tuesday said a final view was yet to be taken on the subject.
In a statement, the ministry said on members of the provident fund who invest their withdrawals in annuity funds, no tax will be levied. If not, 60 percent of the money withdrawn will be taxed. Thus far, it is clear.
But what has created confusion is over whether only the interest component will be taxed upon withdrawal or the whole corpus itself built after April 1 this year. Revenue Secretary Hasmukh Adhia had alluded that only interest will be taxed and not the corpus.
But a statement thereafter suggests no firm decision has been taken as yet.
“We have received representations today from various sections suggesting if the amount of 60 percent of corpus is not invested in annuity products, tax should be levied only on the accumulated returns of the corpus and not on the contributed amount,” it said.
“We have also received representations asking for not having any monetary limit on employer contribution under EPF because such limit is not there in NPS. The Finance Minister would be considering these suggestions and taking a view on it in due course.”
The salaried class was shocked by Monday’s budget proposal presented by Finance Minister Arun Jaitley that seemed to suggest that 60 percent of withdrawals from the provident fund accounts will be taxed — that, too, with retrospective effect.
Jaitley said 40 percent of the National Pension Scheme (NPS) corpus would be tax-exempt at the time of withdrawal to make it attractive for the savers. He said the annuity fund, which goes to legal heirs, also won’t be taxable.
In case of superannuation funds and recognised provident funds, the same norm of 40 percent of corpus to be tax-free will apply in respect of corpus created out of the contributions made on or from April 1, the minister added.
He said the government was also proposing a monetary limit for the contributions of employer in recognised provident and superannuation fund at Rs.150,000 per annum for taking the tax benefit.
The service tax on single premium annuity policies had been reduced to 1.4 percent from 3.5 percent of the premium paid in certain cases.
Similarly, Jaitley also announced exemption of service tax for annuity services provided by NPS and services provided by Employees Provident Fund Organisation (EPFO).
The earlier clarification from Adhia seems to have come due to the uproar against the government’s proposal. But the ministry statement has clearly said the matter was not closed as yet.
“The Finance Bill does not reflect Adhia’s clarification. Perhaps the government may change the relevant provisions,” Neha Malhotra, executive director of Nangia and Company, an international tax advisory and accounting firm, told IANS.