Govt to tax EPF
Indian Government in its 2016 Budget proposed to tax Employee Provident Fund (EPF) withdrawals. EPF, so far, has not been taxed. You can get back your original investment plus the interest without paying any tax. This is likely to change going forward.
Employees should not be worry – You are helpless and You cannot do much
There is lot of hue and cry in the media over EPF taxation. Many salaried employees are worried. But if you think for a minute, there is no point worrying about EPF taxation. What use is worrying, when you have no choice or say. You are forced to invest in the EPF whether you like it or not. You cannot take back your money unless you retire or quit your job for a few months. EPF is a government controlled scheme. Government decides how much you have to invest, how much interest you get paid, how much you can get back and how much tax you have to pay. So unless you are retiring soon, forget about EPF taxation.
Alert investors should be watchful, if not worried – Do not fall for Govt promises
Investors on the other hand should be watchful. Investing in any scheme where rules can be changed post-investment is a tricky investment. EPF and PPF are both such schemes. Now it is EPF, soon it can easily be PPF. For now, PPF provides tax-free interest, making it an attractive investment. Sooner or later, someone in the government will set their eyes on the PPF money and propose to tax it. Government will say that PPF scheme is unfair advantage as all other schemes are taxed. When that happens, you will not see the same amount of protest as EPF taxation. Unlike EPF, not everyone invests in PPF.
Moral of the story – Be watchful when you invest in a Government promise – They can change their mind anytime without asking you
Schemes like PPF and EPF are nothing more than a government promise. Government may keep its promise or may decide to change its terms anytime without taking your consent. All of us assume government schemes are risk-free. This is not completely true. All government schemes have a big risk – Risk of government changing its mind whenever it wants.