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Converting EPF To Pension Account Should Be One Of The Options And Not The Only Option

Mar 15, 2016 | 3 minutes |

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According to a media report, Union revenue secretary Hasmukh Adiha argued in favour of the new proposal to tax employee provident fund (EPF) withdrawals, even as another news report said over one lakh people had signed to support a campaign that demanded the proposal to be rolled back. Revenue secretary Adiha had blamed “poor wording” of the proposal for the backlash it has generated and seemed to insist that the scheme didn’t aim to tax the EPF withdrawal but was merely deferring the time at which withdrawals could be made. “So in a way we have continued exempt, exempt, exempt scheme, but with a time period,” he was quoted as having said. The reality is that the “exemption” would not be for the pension account holders during their lifetimes but for their legal heirs and that too after the death of the account holder. In effect, the account holder cannot withdraw the money without it being taxed for his or her own consumption. What use is the money if the account holders can’t fully use it for their own requirements in their lifetimes? Whether they pass their own money to their legal heirs or not should be up to them and not for any other institution, including the government, to decide. While the intent of the government may be good, making it binding defeats the purpose. Converting the employee provident fund into a pension fund should be one of the options and not the only option. Also, at no point of time withdrawals should be taxed. After all, the EPF account holders do pay their income taxes as applicable by the tax slabs. In fact, if the government really wants to discourage spending, it could simply go back to the old normal, wherein EPF accounts used to continue earning interests for account holders as long as they wished not to withdraw. That alone would discourage people from withdrawing money from employee provident fund accounts. The EPF accounts could also be made to double up as pension accounts, based on an individual’s preference, thereby making it easier for account holders to transition to a pension scheme at a point in life when they feel ready to do so. In a positive development, the government is reportedly open to considering a full rollback of the new EPF proposals while another report suggests the rollback could be partial. ------ About the Author Deepak carries around 25 years of experience. He is the Founder Analyst at B&M NXT. His focus areas include strategic business consulting & advisory, strategic communications, sales enablement and capacity building. He is also a columnist at Governance Now, India’s leading magazine on public policy and governance matters. You can connect with him on LinkedIn here.