EPF Tax Withdrawn – What now?

The finance minister today announced in the Lok Sabha that paragraphs 138 and 139 in his budget speech will be withdrawn.

Paragraph 138 (withdrawn) “In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus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 1.4.2016″.

EPF continues to be tax-free upon withdrawal. Employer contribution which exceed 12% of basic is fully taxable as per current rules. There is no limit to the employer contribution but it cannot exceed 12% of basic.

There was never any limit on employee contributions. VPF subscribers can breathe a sigh of relief for now!! There are no double taxation problems.

Paragraph 139 (withdrawn) “Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. Also, we are proposing a monetary limit for contribution of employer in recognized Provident and Superannuation Fund of 1.5 lakh per annum for taking tax benefit”.
Since this is withdrawn, in the NPS alone, the annuity fund that goes to legal heir is taxable! Thanks to Manoj Nagpal for clarifications via Twitter.
The following proposals stay
137 “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% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme”.

What does 40% of the corpus at the time of retirement mean?

40% of total corpus or 40% of total withdrawable corpus? That is, is the minimum 40% annuity still in force? We need a clarification from PFRDA in this respect.

Also the government is still resolved to make the tax treatment of the NPS similar to that of EPF. It cannot financially afford to make NPS EEE like EPF. Therefore sooner or later, EPF will be taxed.

140 “I propose to exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees”.

141 “I also propose to reduce service tax on Single
premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases”.


What a week it has been! I wish the government had handled this better.

Extract from his speech today:

Watch from 2:45 min for the rollback.

“The main argument is that the employee should have choice of desire where to invest. Theoretically, such freedom is desirable but it is important for the government to achieve policy objectives by the instrumentality of taxation. “In the present reform, the policy objective is not to get more revenue but to encourage the people to join the pension scheme. There are various suggestions received, which can also achieve the same policy objective of encouraging people to join the pension scheme,”

The government likes choice theoretically! Its main objective is to make the NPS more popular. When I say ‘its’ I am not referring to the current government. This push towards NPS is dependent on economics and not politics.

What now?

  1. The revised EPF withdrawal rules stay. While this is not ideal, it not a terrible deal for those who want to withdraw early.
  2. Stay away from NPS as of now. Do Not Invest Rs. 50,000 in NPS For Saving Tax! Especially because of the lack of clarity as mentioned above.
  3. By the way Do not buy Sovereign gold bonds! 🙂
  4. Stick to your asset allocation. Never change it because of tax rules. We invest to beat inflation. Not taxes.


Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media

Do check out my books

You Can Be Rich Too with Goal-Based InvestingYou can be rich too with goal based investing

My first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create customg solutions for your lifestye!Get it now.  It is also available in Kindle format.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want My second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a youngearner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Create a "from start to finish" financial plan with this free robo advisory software template

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

2 thoughts on “EPF Tax Withdrawn – What now?

  1. I think “40% of the corpus at the time of retirement ” is pretty clear..it means total corpus and not withdrawable corpus…it says corpus “at the time of retirement”

  2. As always there is ambiguity in NPS taxation. This lack of clarity will not allow this product to thrive. Its gradually improving though. May be 10 years hence, with this kind of incremental changes, it will become a good product.
    Prof. Pattu is spot on – Stay away from NPS if you want to retire early.

Comments are closed.