Explanation:

 
• Finance Minister has proposed to tax 60 per cent of the corpus of the provident fund at the time of withdrawal, on prospective basis. This has evoked strong opposition from employees’ representatives on the Board of the Employees’ Provident Fund Organisation (EPFO).
• As part of its Budget 2016-17 announcements, the government has proposed to impose a tax on 60% of the corpus at the time of withdrawal.
• The Government has announced that Forty Percent (40%) of the total corpus withdrawn at the time of retirement will be tax exempt both under recognised Provident Fund and NPS.
• It is expected that the employees of private companies will place the remaining 60 per cent of the Corpus in Annuity, out of which they can get regular pension. When this 60 per cent of the remaining Corpus is invested in Annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity.
• The Employees’ Provident Fund is a retirement benefit scheme that was structured to provide financial security to employees of factories and other establishments post-retirement.
• It is administered by the Employees’ Provident Fund Organisation (EPFO) whose highest body is the Central Board of Trustees, with representation from the government, employers and employees.
• While 12% of the basic salary and dearness allowance has to be contributed by all employees earning up to Rs 15,000 per month (not mandatory for others), the employer component (12%) has to be contributed mandatorily in case of all employees. The employer’s component is split into EPF (3.67%) and the Employees’ Pension Scheme (8.33%).
• The return on EPF is decided by the government every year. For 2015-16, the government has announced a small increase to 8.8% from 8.75% for 2014-15.