Tax on Provident Fund Angers Employee Unions As They Warn of Massive Strike; Finance Ministry Says They Will Clarify

In the #Budget2016 announcement, FM Arun Jaitley had declared that 60% of funds withdrawn from Employee Provident Fund (EPF) would be now taxed; and this has stirred the hornet’s nest. This has angered 6 crore employees all over the nation, and employee unions have now threatened a massive strike, which can cripple the corporate and Government establishment.

Such was the heat generated that Finance Ministry had to intervene, and issue a notice saying that they will clarify on the matter soon.

What Is Changing?

Employee Provident Fund or EPF is the corpus which any employee contributes for his retirement. His employer may also contribute to this corpus so that when the employee retires, he has a lump-sum amount to spend.

EPF and other retirement programs are run by Employees’ Provident Fund Organisation (EPFO), which comes under tax free EEE (exempt-exempt-exempt) schemes. This, deposits, interest accruals & withdrawal are tax free under the scheme.

However, after the recent budget announcement, upto 60% of this fund would be taxed, which means that the retiring employee who has saved his salary for old age would be forced to part with his money.

Experts are stating that this move has been made so that retiring employees invest their provident fund in pension schemes, which in turn have been made partially exempted from tax (earlier it was 100% tax; now its 60% taxable).

But how can the Government force this decision on the retiring employees? As per analysts, this is highly immoral decision made by the Government as the employee has anyways paid tax whole his life, and then saved the money to put into PF.

Employee Union Threaten Strike

Reacting to this decision by the Government to tax Provident Fund, employee’s representative in EPFO Board have threatened to launch a strike against the Government if this tax is imposed on them.

In a strongly worded statement, G Sanjeeva Reddy, president, INTUC, &  member of the Central Board of Trustees, EPFO, said, “How can the government justify its decision to tax the accumulated EPF money when the employees have already paid tax on their income? This proposal will have to be taken back and we will send immediate representation on this to the Finance Minister. If they don’t roll it back, we will hold a nationwide strike,”

Employee Unions, irrespective of political inclination have come out against this decision by the Government. Bharatiya Mazdoor Sangh (BMS), which is considered to be close to BJP, is also opposing the move. Brijesh Upadhyay, National Secretary, BMS, said, “This is like taxing the employee two times. We oppose the proposal, and we will take it up with the government.”

Finance Ministry Intervenes

The debates and opposition against this draconian tax imposed by Government gained momentum and the Government had to intervene.

Jayant Sinha, MoS Finance, issued a statement, saying, “We have noted concerns about changes in the tax treatment for EPF/PPF/NPS. Full clarification with FAQs will be issued shortly. In any case please recognise that we are only talking about prospective changes. Existing savings are not impacted in any way.”

We will keep you updated as new details come in regarding this issue.

Do you think employees should be taxed on PF withdrawals? Isn’t Government putting too much pressure on salaried employees? Do share your views by commenting right here.