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Finance Minister Arun Jaitley’s Budget proposal to tax retirement benefits has evoked strong reactions from not only the salaried classes, political opponents and trade unions, but also from the Labour Ministry, which wants a rollback.
“We were never consulted on the proposal. Even during pre-Budget discussions the issue was not raised. If it had been, we would have cautioned the Finance Ministry about the backlash. The announcement took us completely by surprise. Now, we have clearly said that it must be rolled back,” a senior Labour Ministry official told BusinessLine .
Over the past week, the Ministries of Labour and Finance have had multiple meetings with the Prime Minister’s Office (PMO), which has stepped in to review the proposal.
At the meetings, the Labour Ministry made it clear that the proposal needs to be withdrawn as it will disincentivise savings.
The Labour Ministry has also told the PMO that the alternative proposal by the Finance Ministry to tax 60 per cent of the interest income on Employees’ Provident Fund contributions after April 1, 2016 is unviable and should not be pursued.
‘Encourage NPS’“They are the hard-earned savings of individuals and you cannot force someone to part with their money by levying taxes on it. Rather, they should look at ways to incentivise the National Pension System,” said a source, adding that even from a revenue generation perspective, it would raise only about ₹200 crore or ₹300 crore annually.
The proposal to tax 60 per cent of the interest income on EPF contributions is an accounting nightmare, said the Labour Ministry official. “With over 3.7 crore members in the EPFO, it will just not be possible,” the official added.
In his Budget 2016-17 speech, Jaitley had proposed that 60 per cent of contributions made by employees to a recognised provident fund after April 1, 2016 should be subjected to tax at the time of withdrawal.
Jaitley, who had earlier clarified that the objective of the move was to create a “pensioned society” and not revenue generation, is now expected to make a statement in Parliament on the proposal.
Revenue Secretary Hasmukh Adhia had said that the Finance Minister will take a final call on the proposal and, if required, would make changes in the Finance Bill.
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