The budget has a bad news for retirees as the Employees Provident Fund (EPF) will be now be partly taxed. The FM’s proposal for tax exemption on withdrawal’s up to 40% of the corpus of the National Pension Scheme (NPS) is welcome.
However, the FM’s plan to bring parity among the different pension plans will result in a tax on 60% of the withdrawals for contributions to EPF and other plans made after April 1, 2016. At present, the deposits, the interest and withdrawals of the EPF are tax-free as it is an EEE plan.
It is not clear if the Public Provident Fund (PPF) will also come under taxation, but it will require a modification of the PPF Act.
The best thing is that those who are earning up to Rs 5 lakh a year will now get a tax relief of Rs 5,000, up from Rs 2,000 earlier. This hike in relief efficiently raises the basic exemption for these taxpayers to up to Rs 3 lakh.
“The sops offered by the FM will help only a section of taxpayers who are in the low income category,” points out Arnav Pandya, certified financial planner.
For first time home purchasers, the FM is providing a deduction of additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned during the next financial year, given the value of the house does not exceed Rs 50 lakh.
“Another positive move is that the project completion period to claim tax benefits on home loan has been increased to 5 years from the existing 3 years,” said Gaurav Mashruwala, certified financial planner.