Budget 2016: Tax My Savings and Forego Taxes for the Rich

To,

The Union Finance Minister,

Government of India.

 

Dear Mr. Jaitley,

First of all I wish to congratulate you on presenting your second full budget, albeit the rumors about you being shunted out of the post that decides India’s economic orchestra, on the basis that you did rub the person who calls the shots the wrong way for reasons multitude. After all you are a Delhi boy, who dislikes dissent and discord, and can manage to sail over all hurdles.

Image Courtesy: financialexpress 

But, I got stumped, using the cricketing terminology here as you’ve proved that you are more than an archetypical global eminence grise in India’s murky cricket administration, when you said that you wanted to double tax me for the savings I am making, forced by the government norms, in provident fund (PF). Well, the provident fund scheme started in 1954 to safeguard the people who were building a young nation, after all. But you did start the process of putting the final nail in its coffins. Governments over and again used the PF rates to shore up support from the milling Indian working middle class. And, its rather saddening that when it has been apparent that every year there are thousands and thousands of Indian companies, who fault in their contributions to the PF time and again, you moved a proposal to double tax an honest tax payer like me. I do indeed pay income tax at the rate asked by the government every day, whether it is direct or indirect.  

I can well understand what your eyes are on -- build the gap in your revenue mop up. I am sure, why someone like me, a salaried person, feels outraged at your decision to tax 60 per cent of provident fund withdrawals . Come on Mr Finance minister, I don’t withdraw money from my PF account to throw lavish birthday parties, like the many industrialists who have fooled India’s financial system, and continue throw lavish parties. If you don’t recollect what I am referring to, please consult you Central Bank Governor who, with almighty accuracy predicted the global economic meltdown, back in 2008.

Announcing measures for moving towards a pensioned society, you said, "Pension schemes offer financial protection to senior citizens. I believe that the tax treatment should be uniform for defined benefit and defined contribution pension plans. I propose to make withdrawal up to 40 per cent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016."

The move is being seen by salaried professionals like me as bad because this removes one more avenue for tax exemption of income. Someone like me always saw EPF as a nice egg that will not be taxed when I retire. But if 60 per cent of this withdrawal is going to be taxed at slab, 20 per cent in my case, it takes away a significant sum. EPFO has a subscribers' base of over five crore and manages a corpus of over Rs 8.5 lakh crore and the incremental deposits are expected to touch Rs 1.15 lakh crore during the current fiscal.

Just to make it simple, capital gains from equity funds and balanced schemes are tax-free after one year. The gains from debt funds are taxed at 20% after three years, but the indexation benefit reduces the tax significantly.

Please keep also in mind the one lakh support the online petition against retirement tax has received within 48 hours after it was announced in the Budget, after all you are a part of an online government.

This decision of you comes close on the heels of the Employees’ Provident Fund?Organization (EPFO) announcing an 8.8% interest rate on provident fund savings for 2015-16, bringing a smile to over 40 millions of organized sector employees. I agree, this is a marginal increase from the 8.75% interest rate paid in?2014-15.?In fact, the 8.8% interest rate on EPF is the highest since 2010-11 when the EPF savings earned a 9.5% rate of return.

This decision by you forces millions of EPF subscribers to rethink their provident fund contributions. It is unfair as well Mr Jaitley as it amounts to double taxation. In many cases, the contribution does not get any tax deduction because the Rs 1.5 lakh tax saving limit under Sec 80C has already been exhausted by other options such as repayment of housing loan principal, tuition fees of children and insurance premiums. I got just one humble request to you -- please don’t raid my nest’s eggs further. 

Disclaimer: The views expressed here are the author's personal views, and do not necessarily represent the views of Newsclick.