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Taxation on EPF
1. About EPF
The Employees’ Provident Fund is a
retirement benefit scheme that was structured
to provide financial security to employees of
factories and other establishments post-
retirement. It is administered by EPFO whose
highest body is the Central Board of Trustees,
with representation from the government,
employers and employees.
2. About Budget 2016-17 on
Taxation of EPF
The government has proposed to impose a
tax on 60% of the corpus at the time of
withdrawal.
The Government has announced that 40%
of the total corpus withdrawn at the time of
retirement will be Tax Exempt.
The Government has specifically said that
the contributions made until March 31,
2016 will attract no tax at the time of
withdrawal. It will be only applicable on
contributions made on or after April 1,
2016.
4. Argument against Taxation on
EPF
A majority of low income workers withdraw their
EPF money in full at the time of retirement to
buy a house or for other important purposes
and restricting them by imposing tax on 60 per
cent of the corpus will erect hurdles in their
achieving their goal.
Some argue that since the contribution to EPF
goes from tax-paid income, if the government
imposes tax at the time of withdrawal, it will be
like taxing them twice on the same income.
5. Updates as on 08/03/2016
Mr Jaitley announced the rollback in a
short speech in the Lok Sabha on
Tuesday morning. The government
would like to conduct a
"comprehensive review" of the
proposal.