Friday, January 22, 2021
Home Opinions The EPF mess and how not to bring in a taxation change

The EPF mess and how not to bring in a taxation change

The Union Budget 2016 was largely seen as a pro-farmer- anti-big shots, pro-jobs and pro-small businesses due to many measures taken to uplift these sectors. But there has been one issue which has hurt the “middle-class” of India: Bringing PF under tax ambit.

Until now EPF has been the holy grail of all salaried employees. Tax free at all stages from deposit to withdrawal, secure, and a very high rate of Interest. Now, with a prospective effect, the returns are going to diminish significantly since part of the proceeds maybe taxed. Without going into the technical details, there have also been some pre-budget moves to make withdrawal of money from EPF harder.

Why has the Government suddenly turned towards EPF?

The stated objective of the Government, as per the PIB release and other statements is this:

The Government wants EPF kitty to be used by people as a post-retirement fund from which they can earn pension. The people on the other hand use EPF for various purposes, and often withdraw large sums from the account, much before retirement to meet expenses arising from weddings, education or anything they deem fit. The Government is of the view that they have given you a completely tax-free instrument, for your retirement security, and not for your expenses before that, so if you want to spend it before retirement, we will tax you.

Firstly, the Government’s intention is not completely wrong. There can be situations where a person withdraws money prematurely and then is left with nothing at his retirement. The Government just wants to avoid this situation.

But, the means used to arrive at this desired goal are completely wrong. They have failed to factor in that for decades now, people have looked at and used EPF from a completely different angle, and now, midway through one cant just change the rules of the game. Sure, the money which has been deposited pre-April 2016 will not be touched, but still, it is a setback for those who though EPF will help them accumulate money for the any big expense lined up.

Another reason for taxing EPF now is to bring it on par with NPS. NPS is the pension scheme started last year, probably to help take forward the intention of providing retirement security. But till recently, NPS was not competitive as compared to EPF due to different taxation policy. Now, what the Government has done is made both NPS and EPF taxable equally, ensuring parity, and in short nudging people to move towards NPS.

Again, the means used to nudge people to NPS are wrong. It was widely expected that to bring both the schemes on par, NPS will also be made exempt throughout, like EPF, but the Government has gone in the other direction.

Even with this approach, which has now drawn lot of flak, the Government could have reduced the brickbats, but the entire approach to this change has been miserably unplanned. This is just an extension of the abysmal communication skills of this Government.

Before we study how they messed it up here, jog your memory to another scheme which pinched the common man but was implemented largely successfully: The Give it Up campaign. PM Modi made many appeals to Indians (who can afford to do so) to give up voluntarily, their LPG subsidy. There was a clear explanation of rationale: that this subsidy is meant for the poor and not for those who can afford it, and it burdens the Government. The call was largely successful.

By December 2015, it was reported that over 57 lakh LPG consumers had voluntarily given up their subsidies. And that was when the next phase was implemented: Withdrawal of subsidy for those who earn above Rs 10 lacs. Here was a scheme, where the Government made efforts to educate people, get the public sentiment on their, and then brought in a rule to implement it.

Contrast this with the EPF taxation move. Sure, the amounts involved are different, the scheme is different, but see the non-existent messaging here. First see what the Finance Minister’s speech had to say on this:

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. I propose to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016.

This is all that was said by Arun Jaitley on this issue. Nowhere, the intention of the Government was highlighted in his speech. If you don’t even tell me that what you are doing is good for me, why should even imagine that it is even remotely good? The finance bill too is silent on this. It is only the PIB clarification, which comes after a lot of outrage, which states this. Obviously, people are going to take this as an after-thought and not the main objective. Who is to blame for this?

And it gets worse. There was complete lack of coordination between what different faces of the Government said:

1

(sources: Budget Speech, NDTV interview, ANI statement, Press Conference, PIB release)

Not only did the Government fail to communicate why they want to do what they are doing, they also chose a very tax-payer unfriendly means for the same, and then completely bungled up the response. The more bitter the pill, the more sugar coated it has to be, and here the forgot the sugar coating and also the candy after the pill!

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

Gauravhttp://bwoyblunder.co.in/
co-founder, OpIndia.com

 

Related Articles

Trending now

AIMIM’s West Bengal ally Islamic cleric Peerzada Abbas Siddiqui launches ‘secular’ party to contest West Bengal Assembly polls

Peerzada Abbas Siddiqui said that he met AIMIM Chief Asaduddin Owaisi who assured him full support in West Bengal

Protesting farmer unions reject union government’s proposal to suspend implementation of farm laws for 1-1.5 years

The decision was taken in a meeting of the protesting farmer unions today, saying that they only want the repeal of the laws.

Indian Express spreads fake news claiming there were internal objections to Adani Group winning all 6 airports: Read the facts

The civil aviation ministry said that same allegations made in the Indian Express report were already dismissed by Kerala High Court

5 persons dead at Serum Institute of India fire incident, efforts on to control damage

Reports have stated that the fire incident happened at an under construction building and vaccine facilities are safe.

Two suicide bombers detonate themselves in busy Baghdad market killing six, injuring dozens

As per reports, this was one of the rare suicide attacks in Central Baghdad.

Bernie Sanders and his mittens during Biden inauguration trigger a meme fest on social media. Details

The US Senator from Vermont was spotted at the venue wearing parka and a pair of very homely looking mittens at the high profile event.

Recently Popular

Arnab vs Navika: Arnab responds to Navika’s emotional monologue, says he carried his shoes with him

Recently, Navika Kumar said that when Arnab left Time Now, she had his shoes to fill. However, Arnab gives a befitting reply.

The hidden chats in the TRP Chargesheet that nobody is talking about, not even the police: India Today and BARC

In the TRP case chargesheet, pages of personal chats between Arnab Goswami and the ex-BARC CEO Partho Dasgupta have been added

‘Jack Ma is safe and sound’, is ‘laying low’ claims founder and chairman of equity firm Primavera Capital Group

Days after his unflattering opinion of the Chinese authorities, Alibaba founder Jack Ma went mysteriously missing

“Not forgetting this communication until death”: Chef turned filmmaker Vikas Khanna reveals how he was asked to pay for favourable reviews of his movie

Vikas Khanna stated that critics had asked him to pay 3 lacs for 3 star-rating and 4 lacks for 4 star-rating of his movie 'The Last Colour'

Pakistan ‘successfully’ test-fires missile injuring people, destroying houses in civil area, say Baloch leaders

Contrary to claims of Pakistani Army's successful tests of Shaheen-III Missile, several reports coming from Pakistan suggests that the test carried out by Pakistan was a massive failure as the missile landed in a civilian area in Balochistan destroying several houses and injuring civilians

Has China constructed a new village inside Arunachal Pradesh? Not quite: How NDTV misled with its ‘exclusive’ report

Report China building a village inside Arunachal Pradesh was bought out by NDTV yesterday - and it turned out to be fake news
- Advertisement -

 

“BJP will ban burqa, beard, skullcap, azan”, says AIUDF chief Badruddin Ajmal after forming alliance with Congress and Left to defeat ‘communal BJP’ in...

Badruddin Ajmal alleged that if BJP comes to power in Assam again, it will destroy mosques, and put several restrictions on Muslims

Fact Check: Did the US State Department remove Fact Sheet on Coronavirus and China after Biden administration took over

After the Biden administration took over, many netizens noted a fact sheet the US state department had published on Covid-19 is missing

AIMIM’s West Bengal ally Islamic cleric Peerzada Abbas Siddiqui launches ‘secular’ party to contest West Bengal Assembly polls

Peerzada Abbas Siddiqui said that he met AIMIM Chief Asaduddin Owaisi who assured him full support in West Bengal

Gujarat Forest Dept to take legal action against Christian Evangelist Paul Dhinakaran over unauthorised use of the department’s logo

Website of Paul Dhinakaran claims of collaborating with the Gujarat Forest Department, a claim junked by the latter

Protesting farmer unions reject union government’s proposal to suspend implementation of farm laws for 1-1.5 years

The decision was taken in a meeting of the protesting farmer unions today, saying that they only want the repeal of the laws.

Farm Laws 2020: The need of the hour is balanced liberalization, to move beyond rigid ideologies

A balanced liberalization, based on the triad of truth, efficiency and compassion, may find a better tomorrow

Indian Express spreads fake news claiming there were internal objections to Adani Group winning all 6 airports: Read the facts

The civil aviation ministry said that same allegations made in the Indian Express report were already dismissed by Kerala High Court

Uddhav stirs up Belagavi issue, Shiv Sena activists stopped by police from removing Karnataka flag. Details

Police Commissioner said that Shiv Sena leader Vijay Dhavane had plans of delivering a provocative speech at Belagavi.

5 persons dead at Serum Institute of India fire incident, efforts on to control damage

Reports have stated that the fire incident happened at an under construction building and vaccine facilities are safe.

Two suicide bombers detonate themselves in busy Baghdad market killing six, injuring dozens

As per reports, this was one of the rare suicide attacks in Central Baghdad.

Connect with us

245,563FansLike
496,912FollowersFollow
22,800SubscribersSubscribe