To bring about parity in the New Pension Scheme and other retirement schemes, the government has decided to impose a tax at the time of withdrawal on 60 percent of the contributions made after April 1, 2016, to Employees’ Provident Fund (EPF) and other schemes.
At present, social security schemes run by retirement fund body Employees’ Provident Fund Organisation (EPFO) are tax-free. That means deposits, accrual of interest and withdrawals are tax-free under the scheme.
In order to bring greater parity in tax treatment of different types of pension plans, it is proposed that the contributions made on or after April 1, 2016, by an employee participating in a recognised provident fund and superannuation fund, up to 40 percent of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax.Budget Memorandum
It is proposed to provide that any payment in commutation of an annuity purchased out of contributions made on or after April 1, 2016, which exceeds 40 percent of the annuity, shall be chargeable to tax. Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax. Announcing measures for moving towards a pensioned society.
Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans. I propose to make withdrawal up to 40 percent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In the case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 percent of the corpus to be tax-free will apply in respect of corpus created out of contributions made after April 1, 2016.Arun Jaitley, Finance Minister
The minister also said that the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. He proposed a monetary limit for the contribution of the employer in recognised Provident and Superannuation Fund of Rs 1.5 lakh per annum for taking tax benefit.
The minister also proposed to exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees. The Government has also proposed that 14 percent service tax on services provided by Employees’ Provident Fund Organisation (EPFO) to employees, being exempted, with effect April 2016.
The budget has also proposed to increase the threshold for deducting tax deducted at source (TDS) on payment of accumulated balance due to an employee in EPF Rs 50,000 from existing Rs 30,000. Last year budget had provided that the members of private provident fund trusts will not have to pay tax on premature withdrawals provided the amount is either less than Rs 30,000 or their tax liability is nil even after including the withdrawn sum to their income.
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