Union Finance Minister Arun Jaitley’s proposal to tax Provident Fund withdrawals has hit a wall of protests. The Revenue Secretary was forced to come out with certain explanations and clarifications after strong protests from government employees’ associations but the Tax Department has not said anything to the effect of rolling back the tax, which means the budget proposal still stands.
The Employee Provident Fund scheme currently has 3.75 crore members. Almost 3 crore of these earn below Rs 15,000 a month and hence out of the tax net, the Finance Department explains. Whatever it is, taxing a part of salary, which has already been taxed cannot be justified.
When employees retire after 30 or 40 years in service, they may be looking to have some money for expenses like their children’s wedding. It is not proper to tax the withdrawal for needs like this. Even taxing the interest of the deposit is not justifiable.
Another argument in favour of taxation is that it is intended to encourage investment in the pension fund. The government could create awareness among employees about the benefits of investing in the pension fund. But it cannot make it mandatory. It is not democratic to force them to invest in pension funds with a threat of new taxes. Employees will never approve of it.
Jaitley had not raised the ceiling for income tax slabs in his initial two budgets though the salaried class was expecting that. Even the third budget had nothing to offer on that front.
At the same time, the government is trying to rob the salaried class a part of their savings. This is not in the best interest of the employees. The government is sure to face stiff resistance if it did not roll back the proposal.
(The writer is former Chief Customs Commissioner and former Director General of Services Taxes)