Budget 2016-17 could penalise voluntary investments over Rs 1.5 lakh into Employees' PF and General PF accounts, in a bid to prod people into investing their savings in other alternatives such as the National Pension System.
While investments into tax-saving small saving schemes like the Public Provident Fund are restricted to Rs 1.5 lakh a year, it is possible for employees to top up their EPF and GPF contributions beyond that limit.
Though such investments don't lower an individual’s taxable income beyond the Rs 1,50,000 allowed annually under Section 80 C of the Income Tax Act, the interest earned on them remains tax-free.
GPF and EPF
The GPF is offered to government employees, while EPF benefits are mandatory for all organisations with 20 or more employees earning upto Rs 15,000 a month. Those earning over the Rs 15,000 ceiling can contribute to EPF on a voluntary basis.
Key Points
This is part of a fresh attempt by the finance ministry to change people’s investment preferences and nudge them towards the relatively new National Pension System (NPS) administered by the Pension Fund Regulatory and Development Authority (PFRDA).
The PFRDA currently has assets of Rs 1.10 lakh crore under its watch and reports to the finance ministry, while the Employees’ PF Organisation works under the labour ministry and has over Rs 10 lakh crore under its administrative control.
The finance ministry is trying to promote the NPS and downgrade EPF. In the last Budget, it introduced an additional Rs 50,000 tax deduction for investments into NPS, after exhausting the Rs 1.5 lakh limit under section 80 C.
Since 2011, the government stopped paying interest on EPF accounts that were idle for three years. The money parked in these accounts continues to earn income, but it hasn’t been used to raise the EPF rate payouts for other members owing to similar considerations about whether this would be legally permissible.
A part of EPF savings are invested into the stock market since August 2015, just like the NPS has been offering to its investors.
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