Even those in the middle of their career are expected to face losing between Rs 10 lakh and Rs 20 lakh, which equals 12% to 8% of their entire corpus
The tax levied on the Employee Provident Fund (EPF) is expected to cost almost 18% of a person's entire retirement savings at the date of maturity for a person who starts his career today, a leading daily has reported. Those somewhere in the middle of their career may face losing between Rs 10 lakh to Rs 20 lakh, which is nearly 12% to 8% of the entire corpus, the report calculated.
In the Budget, Finance Minister Arun Jaitley first said that 60% of the EPF withdrawals at retirement would be eligible to taxation after April 1, 2016. The rest 40% of the corpus will be tax-free.
To calculate the impact of this, the report has assumed that a 25-year-old working individual with a basic pay of Rs 10,000 per month and a provident fund contribution of Rs 2,400 may end up accruing about Rs 1.87 crore at retirement (assumed at age 58 years). Given that he has just started his career, his contribution to the EPF account may begin after April 1, which means his entire corpus will be taken into account for taxation upon withdrawal. At 60% of the corpus amount, the person may end up losing about 18% of his lifetime savings, the report says.
The tax on EPF was met with much furore from the public at large, which prompted Finance Minister Arun Jaitley to later clarify that 60% of the interest accrued from April 1, 2016, will be taxed at the time of withdrawals after retirement. The other 40% will be tax-free.
He also clarified that this would not affect those earning small incomes, ie up to Rs 15,000, which will be kept out of the purview of the tax on EPF.
However, there's still much confusion about the methodology of this tax and its impact, and any more clarifications have been pushed back to the Budget debate, where Jaitley will clarify the government's final decision on the matter, he said on Wednesday.
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