Union Budget 2016-17: PF amount to be 60% taxable from 1 April

While presenting the General Budget 2016-17 in Lok Sabha today, finance minister Arun Jaitley proposed to make withdrawal of funds up to 60 per cent of the corpus taxable while leaving 40 per cent tax exempt at the time of retirement in the case of National Pension Scheme (NPS).

In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made after 1 April 2016.

The changes announced by finance minister Arun Jaitley in the Budget could reduce your retirement savings significantly when you withdraw it.

The FM has made Employee Provident Fund (EFP) and National Pension Scheme (NPS) withdrawals on retirement partially taxable.

The EPF until now was exempt-exempt-exempt from tax as the amount is already taxed once. Hence, there was no tax on investment, on interest accrued and on withdrawal.
On the other hand, in case of NPS, the funds that one receives in his/her bank account was taxable.

''In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made on or from April 1, 2016,'' finance minister Arun Jaitley said in his Budget speech.

This essentially means when you withdraw from EPF, the 60 per cent of the corpus, accumulated post 1 April 2016, will attract tax and the remaining 40 per cent will not. The move aims to bring all retirement schemes at par.

Under current provisions of the NPS, out of the total corpus, the person needs to buy an annuity plan with the 40 per cent. Of the remaining money that he will get in his bank account, 60 per cent will be taxable.

However, the annuity fund which goes to the legal heir after the death of a pensioner will not be taxable in all three cases.

He also proposed a monetary limit for contribution of employer in recognised provident and superannuation fund of Rs1.5 lakh per annum for taking tax benefit.

He proposed to exempt from service tax the annuity services provided by the National Pension Scheme (NPS) and services provided by EPFO to employees. Also, he proposed to reduce service tax on single premium annuity (insurance) policies from 3.5 per cent to 1.4 per cent of the premium paid in certain cases.

To address the housing needs of all and more specifically the poor, in a time-bound manner, Jaitley announced 100 per cent deduction for profits to an undertaking in housing project for flats up to 30 sq m in four metro cities and 60 sq m in other cities, approved during June 2016 to March 2019 and completed in three years. However, Minimum Alternate Tax (MAT) will be applicable.

Announcing resource mobilisation measures for agriculture, rural economy and clean environment, Jaitley said that additional tax at 10 per cent of gross amount of dividend will be payable by the recipients receiving dividends in excess of Rs10 lakh per annum.

Surcharge will be raised from 12 per cent to 15 per cent on persons, other than companies, firms and cooperative societies having income above Rs1 crore, he said.