The finance ministry on Tuesday said a final view was yet to be taken over tax treatment of provident fund contributions proposed in the union budget.
Members of the provident fund, who invest their withdrawals in annuity funds, no tax will be levied. If not, 60 percent of the money withdrawn will be taxed, the ministry said.
However, there is confusion over whether only the interest component will be taxed upon withdrawal or the whole corpus itself built after April 1 this year. Revenue Secretary Hasmukh Adhia had hinted that only interest will be taxed and not the corpus.
An online petition Change.org against retirement tax with 57,716 signups seeking urgent withdrawal of EPF Tax has gone viral a day after it was announced in the union budget.
40 percent of National Pension Scheme (NPS) corpus would be tax-exempt at the time of withdrawal, and the annuity fund, which goes to legal heirs, also won't be taxable, finance minister Arun Jaitley said.
Jaitley further added that in case of recognized provident funds and superannuation funds, the same norm of 40 percent of corpus to be tax-free will apply in respect of corpus created out of the contributions made on or from April 1.
The government is proposing a monetary limit for the contributions of employer in recognized provident and superannuation fund at Rs 150,000 per annum for taking the tax benefit, he added.
The finance minister announced exemption of service tax for annuity services provided by NPS and services provided by Employees Provident Fund Organization (EPFO). He also announced the reduction of service tax on single premium annuity policies to 1.4 percent from 3.5 percent of the premium paid in certain cases.