Prof. Mithilesh Kumar Sinha
Finance Officer Nagaland University, Lumami
Every government treats salaried and middle class as milch cow, but the tax on Employees’ Provident Fund (EPF) is beyond all sensible limits showing complete insensibility.
For millions of salaried Indians, the EPF is the bedrock of savings for their sunset years. By planning to tax this, the government is snatching away whatever little peace of mind the working class will have. The social security system in India is not on par with those of the advanced nations and EPF is the only saving scheme that can be called a social security net of some worth. Employees save all through their careers knowing full well that EPF belongs to the Exempt-Exempt Tax regime (EET).
The government’s wish that this reform would encourage more private sector employees to go for pension security rather than withdraw to entire money from EPF is deplorable. Families would try to leverage their EPF accruals for life events like child’s marriage, education etc, and it is not prudent for the government to assume that people should withdraw their EPF accruals only to invest in annuity schemes.
IMPACT
• Budget 2016-17 will make the salaried class poor. That the government is going to tax 60 per cent of their savings in the EPF is a big blow. Forced savings (EPF) are being converted into forced taxes through a salary unfriendly document called budget. This type of taxation is nothing but legalised stealing for the exchequer.
• This tax will treat the accumulation of savings as income. When one encash one’s holdings from any long-term capital assets like mutual funds and real estate, then the principal amount is not taxed and the gains are treated as capital gains. Long-term capital gains are either not taxed if held for a certain period (one year for equity and equity funds) or taxed after adjusting for inflation (for everything else). However, the proposed tax will simply add it to the savers’ income. EPF returns are barely above inflation rates. To disallow indexation for inflation is grave injustice.
• Moreover, because this tax will be on bulk withdrawals, it will push even low-income savers into the 30 tax bracket for that year. This is unconscionable. Here I am citing two tables for clarity for the readers and salaried class.
