Finance Minister Arun Jaitley increased the tax surcharge for the super rich, however for the salaried class, whose retirement savings are set in the form of Employees’ Provident Fund (EPF), he used a googly and slipped in a mean cut.
The Finance Minister has proposed in the budget that withdrawal up to 40 per cent of the amount at the retirement time is tax exempt in National Pension Scheme, superannuation funds, recognized provident funds, including EPF and this is applicable for the contributions that are made after April 1 2016.
Earlier, the accumulated savings under the National Pension Scheme (NPS) that were fully taxable at the time of retirement now only 60 per cent of the retirement corpus will be taxable. The same is applicable for EPF making 60 per cent of the saving taxable at the time of withdrawal, which was tax free till now.
The FM said this move has been sought to bring uniformity between the EPF, NPS, and the superannuation pension funds in terms of their tax treatment.
- EPFO handles around Rs.10 lakh crore of retirement savings from 8.5 crore members.
- NPS accounts to 1.15 crore members with savings tallying to Rs. 11 lakh crore.
Apart from this, the FM also proposed a one-time exemption from any tax liability for those who want to switch their retirement savings from a recognized provident fund or superannuation fund to the National Pension System.
The Sovereign Gold Bond Scheme and the Gold Monetisation Scheme are proposed to have a tax incentives.
There will be no tax arbitrage in the pension products(NPS, EPF, superannuation fund)
With making the schemes equal, employees will choose on the basis of their efficiency and returns.
This will have impact on higher income groups whose contribution wil be more thatn Rs. 1.5 lakh to PF and/or superannuation will be taxed they during the time they make and they withdraw.
The proposed exemption for a one-time portability from a recognized provident fund or superannuation find to the National Pension System will hugely benefit employees. This will help all employees as the rate of return could them be applied to a much larger amount of funds.
The redemption by an individual of Sovereign Gold Bond issued by RBI under Sovereign Gold Bond Scheme, 2015 shall not be charged to capital gains tax, has been proposed.
Also proposed to provide that long term capital gains arising to any person on transfer of Sovereign Gold Bond shall be eligible for indexation benefits.
Along with this, the interest and capital gains earned on the deposits under the Gold Monetisation Scheme should be made tax empted, was proposed.
Also proposed to increase the surcharge levied on individuals on earnings above Rs. 1 crore a year from 12 per cent to 15 per cent and a 10 per cent tax to be levied on individuals or companies earning dividends more than Rs. 10 lakh.
For those who earn less than 5 lakh a year willnow receive a tax rebate of Rs. 5, 000 under section 87A, which is up from a rebate of Rs. 2,000 earlier. There are two crore tax payers in this category who will get a relief of Rs. 3,000 in their tax liability.
Presently, people who do not get house rent allowance or do not own a house receive a tax deduction of Rs. 24,000 per year from their income and this has been increased to Rs. 60,000 per year, which will provide relief to those living in rented accommodations, the FM minister added.