Finance Minister hints at review of tax limit on EPF

No plan to merge the EPF with NPS, says Nirmala Sitharaman.

Finance Minister Nirmala Sitharaman has said there is no intent to discourage higher income earners from saving with the Employees Provident Fund (EPF) and that she was open to reviewing the contribution limit of ₹2.5 lakh a year for tax-free interest, imposed in the recent Union Budget.

Reiterating that the EPF will continue to remain in its present form, the Minister said there was no plan to merge the EPF with the National Pension Scheme.

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“We want to continue with the EPF. We understand that there is a certain comfort with people, particularly middle income earners when they are assured of a return,” she said in an exclusive interview with Business Line.

“We have taken a call not to discourage those earning more than ₹15,000 from being part of EPF,” she added.

There can always be a discussion on the ₹2.5 lakh limit. I can go back and review it. But it is a matter of principle. We are only touching those who are putting far more than what an average Indian’s earnings is per month,” she added.

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The Finance Minister has proposed in the budget to tax interest earned on EPF contribution of more than ₹2,50,000 annually.

Realistic numbers

Ms. Sitharaman said the numbers in the Budget are realistic, both in terms of perception and in what can be achieved. “Every number has been repeatedly vetted for being achievable. This is a Budget that has been put through the wringer repeatedly to get it closer to what is achievable,” she said.

Asked if the disinvestment target of ₹1,75,000 crore is too modest, she replied that it could appear to be so. “But I would rather be cautious than stand up and say later that I went wrong,” she said.

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The Finance Minister confirmed that no decision had been made yet on which banks to privatise — the profit-making banks, smaller banks or big ones. In the context of the proposal to launch development financial institutions (DFI), she said the idea was that long-term infrastructure funding will be done by these institutions. “Banks must focus on the primary business of lending for commercial purposes, rather than getting choked by sourcing short-term deposits and lending to long-term projects. There should be a marked difference between the portfolios of DFIs and commercial banks,” she said, adding that the DFI idea will be implemented “as soon as possible”.

Levies on fuel

Asked why the Centre was not reducing excise duty on petrol and diesel despite the sharp climb in their retail prices, Ms. Sitharaman said the Centre and States should sit together and see how best to handle the issue. “Taking into GST can be an option. That will certainly bring it to one rate all over the country. The GST Council can deliberate and take a position on it, but then, the fact is, it is both the Centre and States even then,” she said.

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“Jugaad” ideology

Answering a question on whether the Prime Minister’s speech in Parliament defending wealth creators represents a shift in the government’s philosophy, Ms. Sitharaman said the government was never far removed from the BJP’s economic ideology.

“This country had gone too far in reiterating a socialist and what I would call an imported jugaad ideology made from tweaking imported ideas and constantly adding to them in the hope that they would somehow fit the country,” she said.

“There also needs to be recognition that socialism is not the only ideology that has a copyright on welfare. When the economy does not do well and wealth isn’t generated, then social good suffers and so does the welfare state. We are trying to reinforce that lawfully earning money is not wrong. A tax regime that is not oppressive or adversarial can generate sufficient revenues to fund welfare,” she added.

Read the full interview here.

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