Source | LIveMint : By Deepti Bhaskaran
The finance ministry’s decision to roll back its tax proposal on the Employees’ Provident Fund (EPF) has provided relief to millions of employees and restored the attraction of the retirement savings avenue.
The 29 February budget had announced that only 40% of the total corpus withdrawn from the EPF and National Pension System (NPS) on retirement will be tax-exempt and the remaining 60% taxable unless the amount is used to buy an annuity product. Annuity provides you pension for life and that income is taxed at slab level.
On Tuesday, finance minister Arun Jaitley withdrew the budget provision that sought to tax withdrawals from the EPF, saying the government wanted “to do a comprehensive review of this proposal”.
However the provision allowing NPS subscribers to withdraw 40% of the corpus without any tax liability remains. This means that you pay a tax on 20% of the maturity corpus. And you pay a deferred tax on the 40% that you annuitize.
With not only the maturity corpus taxable, but any contributions to the EPF by the employer over and aboveRs.1.5 lakh taxable in the hand of the employee, the budget provisions had made EPF much less attractive in comparison with the NPS.
NPS allows you to keep up to 60% of the corpus on maturity as lump sum, the rest has to buy you an annuity product. Till now you paid a tax on the amount kept as lump sum, but now you don’t pay a tax on 40% of the corpus withdrawn.
But with EPF moving back to an EEE, or exempt-exempt-exempt, tax regime, it again becomes a popular choice. “Given the rollback, EPF continues to be a preferred product for retirement, but for a long-term goal, you need a combination of both EPF and NPS since NPS gives you a 50% equity exposure,” said Ankur Kapur, founder, Ankurkapur.in, an investment advisory firm.