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Youngsters face EPF tax blow

Hike in tax relief has turned their delight into dismay

Policy Pulse
Publish Date: Mar 4 2016 12:00PM | Updated Date: Mar 4 2016 12:00PM

Youngsters face EPF tax blow

 Salaried people across income levels have reacted with anger against the proposal to tax 60 percent of the EPF corpus created after April 1, 2016. 

The Mumbai-based finance professional had smiled when the Budget proposed a hike in tax relief for those earning less than Rs 5 lakh a year. But his delight turned into dismay after the tax on EPF was announced.
New entrants to the EPF like Pathak will be the worst affected. If his income grows by 8 percemtevery year and Pathak continues to put money in the EPF, he would accumulate around Rs 3.46 crore in his PF by the time he retires at 58. But almost 59% of this, or Rs 2 crore would be taxable. It is learnt that the government is planning to tweak the rule and tax only the interest portion, not the principal. Even then, 41 percent of Pathak's nest egg (or Rs 1.42 crore) will be taxable.
Older subscribers who have periodically dipped into their PFs will also see a big chunk of their savings go into tax. IT professional Satyamurthy Balasubramaniam is 48 but has only Rs 14 lakh in his PF account. 
On the other hand, invest-and-forget subscribers must be feeling relieved. The new rule will not apply to PF balance accumulated till April 2016 and the interest it earns thereafter. 
The ambiguities in the Budget proposals have only added to the frustration of the salaried class. Last year's Budget had talked about the need to allow EPF subscribers to migrate to the NPS. But no steps were taken to facilitate that migration. 
This year's Budget has gone a step further and said that a one-time switch from EPF to NPS will be tax free. But again, there is no clarity on how subscribers can migrate.