60% Withdrawal amount under EPF, PPF and NPS to be taxed
Acche din are gone thanks Narendra Modi ji. This seems to be the most brutal amusement ever made by the government of India. In the recent Budget 2016 FM has now proposed to tax 60% of your retirement fund that is EPF to be taxable. This is really shameful.
This budget coined as farmer’s budget has seriously hit the sentiments of middle class which was highly relying on the EPF money for its survival. But now Modi will levy taxes on 60% of your funds.
In a recent interview Jayant sinha said that this rule will not apply to the accumulated amount till 31st March 2016. This means that person retiring in recent time will not have much of an impact. This will be hit hard to the younger generation.
Government is justifying its decision by saying that they want to put NPS, Superannuation fund and EPF on the same page. They have still not clarified about PPF. Initially NPS came under the category “EET” and EPF and PPF under “EEE”. Amount withdrawn under NPS was 100% taxable but now they have reduced it to 40% and made 60% wealth on EPF taxable.
Please see this table for more clarification.
|Before 31st March 2016||100% Amount Taxable at the time of withdrwing money||0% Amount Taxable at the time of withdrwing money||0% Amount Taxable at the time of withdrwing money|
|After 1st April 2016||40% Amount Taxable at the time of withdrawing money||60% Amount Taxable at the time of withdrawing money||0% Amount Taxable at the time of withdrwing money|
Now we have assumed government has not touched PPF but I seriously doubt it. There is one more thing to remember that if you have an accumulated amount of says rs 10 lakhs before 31st march 2016 and end up with say rs 50 Lakhs at the time of retirement then you will have to pay tax on 60% of (50-10) Lakhs ie on Rs 24 Lakhs. Since this would come under 30% tax bracket you will end up paying rs 7.2 lakhs as tax. This is huge. See the table below.
|Sno||Amount in EPF before 31st March 2016||Total Amount in EPF at the time of retirement||Difference||Taxable Amount||Taxes|
This is a brief table of how much tax you might have to five on your EPF Funds. If this rule applies for PPF then the table would remain same.
Budget 2016: Eight takeaways for individual taxpayers
There has not been many changes brought in the taxation slabs in this year’s annual budget which was announced on 29th Feb, 2016 by the Hon’ble Finance Minister of India, Shree Arun Jaitley. But there has been some changes for some groups of tax payers or the individual tax payers which may affect their pocket in a good or bad way. Following are some major changes for the individual tax payers:
Tax Rebate increased for tax payers
The govt. has decided to bring down tax for those who earn less than 5 lakh per annum will get more tax rebate. An extra of Rs. 3,000 can be saved from tax for this income group. Earlier the govt. used to provide Rs. 2,000 as tax rebate under the Income Tax Section of 87 A, but from the next financial year, it has been raised to Rs. 5,000.
Tax relief for home loan customers
Those who want home loans for their first home will get an extra Rs. 50,000 tax rebate from now on. This tax rebate is only for those home loans which are upto a maximum of Rs. 35 lakh and if the total cost of the home is below Rs. 50 lakh. Otherwise, the customer will have to pay full tax as earlier.
Tax rebate for Pension schemes
The govt. has introduced a tax rebate policy by a margin of 40 % from the pension funds like the National Pension Schemes, Provident Funds and the superannuation fund. Another benefit introduced in this year’s budget is lowering of service tax on the insurance policies which are single premium type, from 3.5 per cent to 1.4 per cent on the annual premium paid. Further, after the pensioner dies, the pension fund will go directly to the legal nominee without any taxation.
Advantage on tax deduction for Non Residential Indians
The budget has brought a big relief for the Non Residential Indians (NRIs) as they will not have to pay the extra 20 per cent tax which was charged earlier from them for not having PAN cards. But to avail this facility, they must submit their tax identification number.
Tax declaration scheme for undeclared income
The govt. has decided to provide some time for declaring the incomes of those who hav not disclosed it till now and the govt. will charge some tax on that. The govt. has given a window of three months i.e. from 1st June, 2016 to 30th Sep, 2016 to declare all undisclosed incomes of the domestic tax payers and pay tax on the amount. This act will not include the any further enquiry by the Tax Dept. on the undisclosed income. An added tax will be taken which will be used for development work in the field of agriculture. Following are some data regarding the Compliance window given by the govt.
|Sl. No.||Attributes||Related Information|
|1||Nature of tax payer||Domestic tax payer|
|2||Deadline of income disclosure of undeclared incomes||1st June to 30th Sep 2016|
|3||Tax to be paid on the undisclosed amount||40 %|
|5||Penalty for non disclosure||7.5 %|
|6||Total additional tax to be paid||45 %|
|7||Time for paying the tax dues||2 months from the date of declaration|
Penalties for not paying tax timely
The new budget has introduced tougher rules for tax evaders or those tax payers who do not pay their taxes on time. The current rule is that the income tax officers set the penalty amount of the tax defaulters which ranges from 100 % – 300 % of the total tax. But this will be altered and from the next financial year, the penalty rate will be 200 % for those who will not report the facts of income sources at all. Also there will be a penalty of 50 % on the total tax amount if someone shows lesser income i.e. underreporting cases.
Clothes, automobiles and cigarettes to become more costly
Luxury will clearly cost more from now on. The govt. has decided an increase in tax for buying luxury cars which cost more than 10 lakh. Also the CNG, LPG cars will have 1 % more tax and will be taken as infrastructure cess. The bigger cars like the SUVs will also cost more by having added tax of 2.5 % to 4 %. Branded clothes will become costlier as the excise duty on them will be hiked. The clothes which cost more than Rs. 1,000 will be levied an extra tax. Also the cigarettes and other tobacco items will become costlier.
Presumed income tax benefit
The small and medium scale industries now can have a little relief as the center has decided to increase the turnover limit of the small and medium scale industries to Rs. 2 crore. The earlier presumed income was Rs. 1 crore. So under the Section 44AD, those who fall under this group will not have to maintain audits.