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No tax on PPF, only interest on 60% EPF withdrawal will be taxed


01 Mar, 2016 4:26p.m.

After a huge uproar and the confusion over a proposal in Budget 2016 to tax 10% of employee provident fund withdrawals, the Finance Ministry has issued a clarification. Explaining the proposal, Revenue Secretary Hasmukh Adhia said contributions to the Public Provident Fund (PPF) will continue to remain exempted from tax.

"PPF contributions will continue to be tax exempt. There will be no tax on withdrawal," he said

Adhia also said that only the interest accrued on 60% contribution to Employee Provident Fund (EPF) after April 1, 2016 will be taxed while the principal amount will continue to remain exempted from tax.
As mentioned by Finance Minister Arun Jaitley in his Budget speech, small salaried employees with up to Rs 15,000/month income will be kept out of purview of proposed taxation of EPF.

According to the Union Budget speech on Monday, the contributions made on or after April 1, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40% of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax. Any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40% of the annuity, shall be chargeable to tax.

Jaitley had also said that "the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. Also, we are proposing a monetary limit for contribution of employer in recognized Provident and Superannuation Fund of Rs 1.5 lakh per annum for taking tax benefit. 140. I propose to exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees."

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