This is not a good news either to the employees or pensioners. By making the Employee Provident Fund (EPF) and National Pension Scheme (NPS) withdrawals on retirement partially taxable, the finance minister Jaitley dented the retirement benefits to an extent.
In his budget speech, he said- “I propose to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016. Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. Also, we are proposing a monetary limit for contribution of employer in recognized Provident and Superannuation Fund of `1.5 lakh per annum for taking tax benefit. I propose to exempt from service tax the annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees. I also propose to reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases”
This means when we withdraw 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.
For example, if a person has Rs 10 lakh corpus in the NPS on retirement, he will need to buy an annuity with Rs 4 lakh. Of the remaining Rs 6 lakh that comes to his bank account, 3.6 lakh will attract tax.