Finance Minister Arun Jaitley may have been forced to back down on taxing Employees' Provident Fund (EPF) withdrawals a week after introducing the measure in the Budget, but the government has not given up on the goal of creating a pensioned society.
It's now considering a proposal to make it mandatory for employers to route most of their share toward the retirement savings of employees into the Employee Pension Scheme (EPS) rather than EPF for employees above the salary threshold of Rs 15,000 per month, an official said.
Changing the rule on the employer's contribution would mean that a substantial portion of this would go toward a pension for the employee, rather than getting withdrawn at one shot from the EPF at retirement. This will maintain parity between EPF and the General Provident Fund as the former will continue to enjoy exempt-exempt-exempt (EEE) status at the stages of investment, accumulation and payout. "This proposal was discussed at a highlevel meeting in the PMO last week," said the senior government.
There was near agreement that this would be a better way to move toward a pensioned society, according to the official, who did not wish to be identified. "Government does not want to go wrong this time and we would ensure that there are extensive consultation with all stakeholders on the proposal," the official added.
The government used to contribute 1.16% to the pension kitty of every EPF member as part of EPS run by the EPFO to offer a pension for life after the age of 58. In September 2014, EPFO withdrew this subsidy for those earning above the threshold of Rs 15,000 per month.