In the Finance Bill, 2016 the government had recommended to
introduce the following amendment to the Income Tax Act, 1962. The relevant
portion is reproduced below,
In section 10 of the Income-tax Act,—
(A) with effect from the 1st day of April, 2017,—
(i) in clause (12), the following shall be inserted, namely:—
‘Provided that nothing contained in this clause shall apply in
respect of any amount of accumulated balance, attributable to any contributions
made on or after the 1st day of April, 2016 by an employee other than an
excluded employee, exceeding forty per cent. of such accumulated balance due
and payable in accordance with provisions of rule 8 of Part A of the Fourth
Schedule.
Explanation.—For the purposes
of this clause, the term “excluded employee” means an employee whose monthly
salary does not exceed such amount, as may be prescribed;’;
(ii) after clause (12), the following clause shall be inserted, namely:—
“(12A) any payment from the National Pension System Trust to an employee on
closure of his account or on his opting out of the pension scheme referred to
in section 80CCD, to the extent it does not exceed forty per cent. of the total
amount payable to him at the time of such closure or his opting out of the
scheme;”;
It may kindly be noted that the Fourth Schedule of the Income Tax
Act, 1962 is in respect of the Provident Fund other than those covered under
Provident Fund Act, 1925. The Provident Fund Act, 1925 covers provident fund of government employees
and the withdrawal of provident fund under Provident Fund Act, 1925 was
exempted under Section 10(11) of the Income Tax Act, 1962. Thus the budget
proposal had impact on NPS subscribers and members of recognised Provident Fund
like EPF etc. There was wide spread protest on bringing the withdrawal of PF
under EPF under Tax net and rightfully so , as the decision to tax the
withdrawal of the hard earned money of the workers was totally unjust. The Government has informed that the proposal
to tax the withdrawal from recognised Provident Fund has been dropped but the
proposal on the National Pension Scheme would remain as such.
It is pertinent to note that prior to this budget withdrawal at any
stage from National Pension Scheme was taxable. Only in this budget an
exemption has been made for 40% of withdrawal, but that limit comes to play
only on ‘closure of his account or on his opting out of the pension scheme’.
Withdrawal at any stage in between, including that for terminal illness would
attract tax. Further it is not clear as to whether, on retirement the account
is considered as closed as the account would be required for getting the
monthly pension amount. Hence the subscribers may not have any tangible benefit
from the inclusion of the clause in Section 10 of the Income Tax Act, 1961.
Thus only members of the New Pension Scheme are
being taxed for their withdrawal whereas the withdrawal of provident fund
amount by employees who joined prior to 2004 in Central Government service and
members of other recognised Provident Funds are tax free. It is unjustifiable
to tax the amount deposited by the employees and being treated differently.
This is an injustice that exists from the time of implementation of the
National Pension scheme and is still continuing.
