Finance Minister Arun Jaitley has completely rolled back the tax on EPF withdrawal. And in his rollback speech, he reiterated that “the policy objective is not to get more revenue but to encourage the people to join the Pension Scheme”. Since ‘Pension Scheme’ is marked in upper-lower in the statement, it can be reasonably assumed that he is referring to National Pension Scheme (NPS). After all, this is not his first attempt to popularise NPS. He has provided an exclusive Rs 50,000-window only for NPS in last year’s Budget. He also removed restriction on employers’ contribution, which was capped at Rs 1.5 lakh at the time.
To make NPS more attractive, he has made 40% of amount withdrawn from NPS also taxfree in this Budget. Since he was not able to make NPS attractive through these measures, he decided to cut wings of competing products like EPF and make them unattractive. The attempt to tax 60% of EPF corpus generated after April 1, 2016, and to restrict employers’ contribution to EPF at Rs 1.5 lakh are best examples for this. If there was no hue and cry against these measures, he would have attempted his hand at next competing product, Public Provident Fund (PPF), in the coming years.
NPS should not be made attractive by making competitive products unattractive. When everyone was demanding taxation parity of NPS with competing products, what they had in mind is making NPS tax efficient and not to impose additional tax on EPF or PPF.
