Salaried class ko gussa kyun aata hai? With tax on EPF, it's triple whammy on retirement funds
By Piyush Jain
Salaried people are the only source of revenue for the government. They are low hanging fruits.
The sole three-decade-old instrument that has been a primary source of retirement fund has come under the tax net. It’s a triple whammy for the salaried class?
Whammy No 1:
A few days earlier, the government introduced new rules disallowing EPF withdrawal before the age of 58 years. Nothing wrong with aligning the retirement age but what does restricting withdrawal mean for people like us?
Unemployment and joblessness are increasing. Finance Minister Arun Jaitley, too, has mentioned about the ‘negative winds blowing in for global economy’. So why has withdrawal been restricted? Earlier, if a person was out of job for more than two months, he/ she could withdraw this corpus to continue with his life. How does the government plan to give the aam aadmi social security?
Whammy No 2:
EPF is now subject to TDS. Any contribution over and above 1.5 lakh per annum from the employer side will be taxed at source i.e. reducing the salaried person’s savings. We are already paying tax for every penny earned as there are very few tax saving instruments/ options left.
Whammy No 3:
Tax on withdrawal. Now 60% of all contributions made post 1st April 2016 will be taxed at the slab of the individual at the time of withdrawal.
Since the first whammy has restricted withdrawals until the age of 58, even at a meager 5% year-on-year increase in salary, it’s safe to assume that most of us will have reached the highest slab by the time we reach that age - if not the highest, the second highest. Which means, the government will enjoy tax revenues at our highest slab at the time when we would be in most need of money and retiring.
Since, in the second whammy, tax is already being deducted on 50% of the contribution (assuming the contribution of the employer and the employee remains equal), this is clearly double taxation on the retired person.
Additionally, the interest accrued on this 60% contribution each year will also be subject to tax at the same slab at the time of withdrawal.
So, the EPFO now has a job to do:
1) Keep track of the balance of each individual as on 31 March, 2016
2) Keep track of contributions made each year and segregate them as 40 percent (tax-free) and 60 percent (taxable)
3) Keep track of interests accrued every year, which are:
a) Interest on balance as on 31 Mar 2016 will continue to be tax-free. So this needs to be monitored separately by EPFO until the age of retirement of an individual.
b) Interest on 40 percent contribution made each year beginning from 1 April 2016 as that too will be tax-free. So this too needs to be monitored separately by EPFO until the age of retirement of that individual.
c) Interest on 60% contributions made each year beginning 1 April 2016 as that will be taxable at the time of withdrawal. So this needs to be monitored separately by EPFO till the age of retirement of that individual
Isn’t the EPFO already burdened with the process of digitising across the country, providing a single UAN etc? Isn't the complicated tax structure going to be an additional trouble for the staff there?
And what if the governments in future abolish this mid-way until the retirement age, would I as an individual also need to keep separate books of accounts for EPF, so that I don’t miss out anything?
How will this interest and taxation be managed in a transparent manner? We already have issues in convincing EPF officials about emergencies etc during partial withdrawal.
Is this the last nail in the coffin of middle class salaried people?
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