'EPF tax not a shocker; bad phrasing in Budget speech made it confusing'

The government only wants to encourage investment in pension schemes, it was the phrasing in the Budget speech that caused the confusion over the EPF tax, said a government official.

Ahmedabad: Union revenue secretary Hasmukh Adhia today defended the proposal to tax Employee's Provident Fund withdrawals, saying the intention was only to encourage investment in pension schemes, but the phrasing in the Budget speech caused the confusion.

"The entire thing happened not because of any illogicality in the step but due to the communication gap," Adhia said at an interaction on Budget at the Ahmedabad Management Association here.

"In the budget we try to concise the speech by minimising the words. If it goes beyond 1 hour and 30 minutes it becomes boring. When we were reducing the number of words and when it came to this paragraph we chopped it off and that is how the problem occurred," Adhia said.

"If we had paraphrased this paragraph differently then less confusion would have been created." 

The government has in fact continued with the policy of exempting EPF at all three stages (entry, during the scheme and exit), he argued.

"We have not said that we will be taxing remaining 60 per cent (of withdrawn EPF). The first 40 per cent is totally exempt. Regarding remaining 60 per cent the expectation is you should put it in some pension scheme....To encourage people to put their money in pension products we have said if you put the remaining 60 per cent in annuity scheme it wil not be taxed....original corpus after your death will go to your heir and that will also be tax exempt," he said.

"So in a way we have continued exempt, exempt, exempt scheme, but with a time period," he said.

"We do not wish to get anything out of this, it is not a revenue mobilisation effort," Adiha said.

"The Finance Minister has already said that he will make the announcement on it in a very short time (in Parliament)", he noted.

The government could not raise the Income Tax exemption limit as when it was raised the last time from Rs 2 lakh to 2.5 lakh, it lost some 40 lakh tax payers, he said to another question.