New PF withdrawal norms on hold: All you need to know about the govt flip-flop

The decision to allow withdrawal of provident fund money in specific but important aspects has certainly helped calm the nerves of the salaried class, who were earlier dejected by the government's proposed recommendation in the Union Budget 2016.

However, the issue has been marred with controversy ever since the government first announced complete restriction on the premature withdrawal of retirment fund by an employee. Facing protest, the government today kept in abeyance for three more months the proposed move to bar withdrawal of employer's contribution to the provident fund corpus until the employee attains the age of 58 years.


To give a sense, below are the developments with regards to PF withdrawal case over the past few months.

What was the government's earlier stance?

The government's notification said from 10 February, 2016, an employee contributing to the Employees's Provident Fund will not be allowed to withdraw the entire corpus. It basically meant that anyone who has been unemployed for two months or more can now withdraw only his own contribution into the Employees' Provident Fund and the interest that has accumulated on it.

Further, the second portion i.e. the employer's contribution to the EPF and the interest accumulated on it can only be withdrawn at the retirement age of 58.

Previously, an employee could withdraw the entire corpus accumulated under the EPF tax free.

What did the budget proposal say?

In the budget for 2016-17, the government had proposed that withdrawal in excess of 40 percent of the accumulated corpus will be taxed. FM clarified that the idea was not to increase revenues but to achieve the policy objective of creating a pensioned society. The proposal gave rise to outrage among the salaried class. An online petition against retirement fund tax went viral on social media seeking urgent and immediate withdrawal of the proposal just a day after it was announced in the Budget forcing the government to review.

When did the government roll back its proposal?

In early March, the Centre withdrew the proposal. The government also revoked the proposal to limit non-taxable employers’ contribution to PF accounts at Rs 1.5 lakh.

Finance minister Arun Jaitley, however, said the proposal to keep 40 percent of withdrawals from the National Pension System (NPS) accounts tax-free stayed unchanged.

Despite all this, the bad taste remained. The salaried class, the constituency of the ruling BJP, had to do more.

What else did the govt do to placate the disillusioned middle class?

Earlier this month, retirement fund body EPFO had deferred until 30 April implementation of new norms that restrict 100 percent withdrawal of provident fund by members after unemployment of more than two months, among others.

In February, the EPFO amended the EPF Scheme 1952 to tighten the various norms for withdrawal of provident fund including increasing age limit for filing such claims by retiring employees to 58 years from 54 years.

Besides, the retirement fund body also restricted withdrawal of PF to own contribution of subscribers and interest earned on that, if the claimant has remained unemployed for more than two months. The member would be able to withdraw employers contribution on maturity.

It was stipulated that the requirement of two months unemployment will not apply in cases of women members resigning from the services for the purpose of getting married, on account of pregnancy or child birth.

According to the new norms, subscribers will not be able to claim withdrawal of PF after attaining 54 years of age. They would have to wait till attaining the age 57 years.

What is the fresh twist?

In a meeting held on Monday, the labour minister Bandaru Dattatreya, after receiving representations from trade unions, curbed the planned restrictions by allowing the withdrawal of retirement funds for housing, major medical treatment for self and family members, medical, dental and engineering education of children, and for their marriage.

However, facing protest from citizens, the government today kept on hold the proposed move for three months. "The notification (tightening PF withdrawal norms) will be kept in abeyance for three months till July 31, 2016. We will discuss this issue with the stakeholders," Labour Minister Bandaru Dattatreya told reporters.

His announcement comes in the midst of protest by labour unions in several parts of the country against the bar on withdrawing employer's contribution from the PF money.

People have also launched online campaign against the decision, which was to be implemented from February 10 but was later put on hold till April 30.

With inputs from PTI

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Updated Date: Apr 19, 2016 16:15:03 IST