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Monday, February 29, 2016 |
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| EPF will now be partially taxable
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The changes announced by the finance minister Arun Jaitley in the Budget can reduce an individual's retirement savings significantly on withdrawal. The FM has made Employee Provident Fund (EFP) and National Pension scheme (NPS) withdrawals on retirement partially taxable. The EPF until now followed a exempt-exempt-exempt taxation structure. This means, there was no tax on investment, on interest accrued and on withdrawal. In case of NPS, the funds that you receive in your bank account was taxable.
This essentially means when an individual withdraws from EPF, the 60 per cent of the corpus, accumulated post April 1,2016, will attract tax and the remaining 40 per cent will not. According to the current provisions of the NPS, out of the total corpus, the person needs to buy an annuity plan with the 40 per cent. Of the remaining money that he will get in his bank account, 60 per cent will be taxable.
The move comes in to bring all retirement schemes at par with each other. The NPS scheme was taxable on maturity (on retirement), while the other products such as EPF were not. Due to this, many taxpayers, didn't opt for the NPS despite being offered an additional deduction of Rs 50,000 on it under Section 80CCD (1B).
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