Following a backlash, both in and outside Parliament, for dipping into retirement savings of the working class, the Indian Finance Minister Mr. Arun Jaitley announced the withdrawal of the budget proposal of taxation of the Employees’ Provident Fund (EPF).
“We propose to withdraw the tax… the tax proposal for NPS scheme has been retained,” said the Finance Minister Arun Jaitley in the Lok Sabha, adding that “the intention was to encourage a pensioned society”. In view of the representations ?received, including from Members of Parliament, Mr. Jaitley said, "the Go?vernment would like to do comprehensive review ...and therefore I withdraw the proposal".
"The purpose to tax EPF withdrawals was to encourage a pensioned society. However, In view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal," Jaitley said in a suo motu statement in the Lok Sabha.
He, however, stated that 40% tax exemption given to National Pension Scheme (NPS) subscriber at the time of withdrawal remains.
Jaitley had proposed that 40% of the EPF withdrawals would be tax exempt and the remaining 60% would also get the same treatment provided the amount is invested in pension annuity schemes.
The decision to withdraw it, however, was taken after suggestions were received from several MPs across party line that the change will "force people to invest in annuity product even if they are not willing to do so". The main argument, he said, was that the employees should have the choice of where to invest.
This proposal has drawn criticism from the salaried middle class, opposition political parties and the unions which said it amounted to forcing employees to invest in pension annuity schemes.