[poloman]

Last heard on the matter is Govt also may be in favor of #RollBackEPF.
Not sure how much this is true but some reports indicate PF has become a sort of ponzi scheme where retirees are paid from the new joinees. This has gone unmanageable with higher interest rates as high as 9% in an otherwise falling interest rate regime. So the bottom line is Govt want people to stop things like VPF and go a step further stop EPF altogether and want people to join schemes like NPS.

[Blue_V]

Sorry ranting again. Being 100% honest is not the way to survive in this country and being salaried middle class. Its a huge disappointment from this government. The last budget, FM said we can invest Rs.50k more to reduce taxes. Oh really!. These people don't even know the cost of living in a city. Its a tough task to save 1 lakh per year and we are asked to invest it back into government, and the interest on that is taxed again. One always ends up paying 2xHRA at the minimum because rental prices are so high. There is no way around that apart from living in a shack. Look at all the benefits the backward communities, BPL and other minorities get. Ok end of rant.

[Lalvaz]

Originally Posted by poloman

Last heard on the matter is Govt also may be in favor of #RollBackEPF.
Not sure how much this is true but some reports indicate PF has become a sort of ponzi scheme where retirees are paid from the new joinees. This has gone unmanageable with higher interest rates as high as 9% in an otherwise falling interest rate regime. So the bottom line is Govt want people to stop things like VPF and go a step further stop EPF altogether and want people to join schemes like NPS.

What is the source of this claim that the PF has become some sort of a ponzi scheme?

The fact is that the PF commissioners are running a surplus and they did not even declare the return that they had themselves recommended.

Please do not spread false rumours and malign a good investment product.

The reason this government is meddling with PF is to make NPS more attractive and to get people to put more of their retirement corpus in the stock markets. Various steps taken over the last few years stand testimony to that.

I sometimes wonder at the ethics of the government proposing to tax the retirement savings of the one segment of Indian public that for the most bit has no black money. And they have the gall to propose these illogical measures of taxation when they do not even provide a social security of any sort.

Truly disgusted !!!

[gsurya]

Originally Posted by poloman

Last heard on the matter is Govt also may be in favor of #RollBackEPF.
Not sure how much this is true but some reports indicate PF has become a sort of ponzi scheme where retirees are paid from the new joinees. This has gone unmanageable with higher interest rates as high as 9% in an otherwise falling interest rate regime. So the bottom line is Govt want people to stop things like VPF and go a step further stop EPF altogether and want people to join schemes like NPS.

Even the Govt parrots are not maligning VPF / EPF this way! Do you even know that India is admired for its excellent savings rate mainly because of EPF / VPF?

In Budget 2016, Govt has increased insurance/pension company FDI by automatic route to 49%. Naturally, they have to push people out of debt schemes into these companies.

Instead of convincing people in a transparent manner by public consultation, they tried to sneak it through budget & got caught. Now they are making all sorts of clarifications & hinting at rollbacks. Damage is already done, what little trust was there is gone.

[poloman]

Originally Posted by Lalvaz

What is the source of this claim that the PF has become some sort of a ponzi scheme?

The fact is that the PF commissioners are running a surplus and they did not even declare the return that they had themselves recommended.

Please do not spread false rumours and malign a good investment product.

The reason this government is meddling with PF is to make NPS more attractive and to get people to put more of their retirement corpus in the stock markets. Various steps taken over the last few years stand testimony to that.

I sometimes wonder at the ethics of the government proposing to tax the retirement savings of the one segment of Indian public that for the most bit has no black money. And they have the gall to propose these illogical measures of taxation when they do not even provide a social security of any sort.

Truly disgusted !!!

I think you are misunderstanding my point. I am among the persons seriously affected by this move.

All I am saying is Govt is doing this with a purpose. EPF was introduced to protect the low income salaried class. With incomes steadily rising the govt can't keep on providing 9% interest tax free to the corpus where as the outside interest rates are south of 7.5% taxed. We are assuming that the EPF is happy to have a big corpus with it. But what they are going to do with that to provide 9% interest. Where are they going to invest to provide you 16% returns ( effective after tax break) where as outside rates are falling steeply? This is akin to a ponzi scheme.

They are even limiting the employer's contribution to 1.5L if I am right. All this point out Govt want people to put less money in to EPF.I have not made this up, most of the points are from TV discussions I heard on the matter. i totally agree and convinced that this is also to help the companies who have launched slew of pension products.

The source for the mention of PF being run as a ponzi scheme
http://www.business-standard.com/bud...0100672_1.html

Originally Posted by gsurya

Even the Govt parrots are not maligning VPF / EPF this way! .

Do you think that any govt will have the guts to come and openly proclaim this? How many of were aware of the EPF notification on the change in EPF withdrawal rules which prohibits you from withdrawing the employer's contribution till you are 58. Also the change in the age for withdrawal from 55 to 58. Now if you are fired or took early retirement and want to start a new business you won't get 40% of your pf. How just is that? Full details here.
http://www.relakhs.com/latest-epf-wi...10th-feb-2016/

The twitter trend #RollBackEPF was cryptic asking the govt to roll back the EPF itself and give freedom to people to invest this money where ever they want if they are giving a stick to the EPF

[gsurya]

Just realized we are such ungrateful people after reading this soundbyte from MoS Jayant Sinha

[sdp1975]

Another article from Deepak :

EPF should be only used in the most minimum quantities primarily because the quality of annuities in India are waay lesser than equivalent products. An annuity for life with return of premium to your heirs gives you a return of about 6.7% today (Rs. 6,700 per year for one lakh invested) which is taxable. If you had the corpus, you could invest in tax free bonds and get an income of 7.5% tax free. Annuities make no sense to buy, but we now are forced to buy them.

http://capitalmind.in/2016/03/update...exit-and-more/

And as he says in a comment later , people really have to manage their own retirement.

[naveenroy]

Originally Posted by Chetan_Rao

P.S. The cynical part of me suspects this was just an experiment to ascertain the level of resistance (no real intent to implement right now), and we haven't seen the last of this idea. I'm thinking we'll see this again, albeit in a multi-year gradual roll-out. The govt. needs more money, and it's plenty clear they ain't going to target the big daddies. Salaried chumps to the altar, one way or another!

Hehe, I think it was a real mistake but agree that we might not have seen the last of this idea and many others like it. They will keep trying. They're quite the patient lot.

Originally Posted by Dry Ice

So is #bakwaasbudget.

Maybe setting up a business and evading taxes is the only way forward in this country.

Yes, and you will get support from the govt, will get gov cronies to hide your money in various ways and hoodwink the govt ultimately.

[Chetan_Rao]

Even though the govt. is claiming to leave PPF alone (for now), I'm skeptical to put my money there going forward. I know I'll be double-taxed anywhere I put my money, but I'll at least have some control over liquidity and no restrictions on withdrawal.

[Lalvaz]

Originally Posted by poloman

I think you are misunderstanding my point. I am among the persons seriously affected by this move.

All I am saying is Govt is doing this with a purpose. EPF was introduced to protect the low income salaried class. With incomes steadily rising the govt can't keep on providing 9% interest tax free to the corpus where as the outside interest rates are south of 7.5% taxed. We are assuming that the EPF is happy to have a big corpus with it. But what they are going to do with that to provide 9% interest. Where are they going to invest to provide you 16% returns ( effective after tax break) where as outside rates are falling steeply? This is akin to a ponzi scheme.

[/b]

Today, there are tax free bonds issued by government companies offering 7.5% returns tax free for a period of 20 years. So, its not as if 9% is a huge difference. Secondly, as per this article, the government would be left with a Rs.680 cr surplus after paying 8.8% to PF subscribers.

http://economictimes.indiatimes.com/...w/51011641.cms


Thirdly many companies have their own PF trusts. These PF trusts invest in government securities and now some equity. A trust that I am aware of is running a surplus and is currently earning over 9.5% on its corpus.

So how is it a ponzi scheme?

Basically, its a tussle between the finance ministry and the labour ministry. The finance ministry is trying to force people to move to pension funds. Why? Why not let people decide what to do with their own money? What is this vested interest in further NPS and pension funds? This should be challenged in a court of law. It is devoid of any merit or benefit to the retirees.

[GrammarNazi]

I was wondering why can't people just invest PF funds in an Annuity and use it as security to take a loan against the amount ?

[pramodkumar]

Another budget and tax joke

1) What r u doing ?

Ans. : Business

Tax : PAY PROFESSIONAL TAX!

2) What r u doing in Business?

Ans. : Selling the Goods.

Tax : PAY SALES TAX!

3) From where r u getting Goods?

Ans. : From other Area / State / Abroad.

Tax : PAY CENTRAL SALES TAX, CUSTOM DUTY & OCTROI AND NOW LBT & LPT!

4) What r u getting in Selling Goods?

Ans. : Profit

Tax : PAY INCOME TAX!

How do you distribute profit ?

Ans. : By way of dividend

Tax : Pay DIVIDEND DISTRIBUTION TAX!

5) Where r u Manufacturing the Goods?

Ans. : Factory

Tax : PAY EXCISE DUTY!

6) Do u have Office / Warehouse / Factory?

Ans. : Yes

Tax : PAY MUNICIPAL & FIRE TAX!

7) Do you have Staff?

Ans. : Yes

Tax : PAY STAFFS PROFESSIONAL TAX!

8) Doing Business in Millions?

Ans. : Yes

Tax : PAY TURNOVER TAX!

Ans. : No

Tax : Then pay MINIMUM ALTERNATE TAX (MAT)

9) R u taking out over 25,000 Cash from Bank?

Ans. : Yes, for Salary

Tax : PAY CASH HANDLING TAX!

10) Where r u lodging your client?

Ans. : Hotel

Tax : PAY LUXURY TAX!

11) R u going Out of Station for Business?

Ans. : Yes

Tax : PAY FRINGE BENEFIT TAX!

12) Hav u taken or given any Service/s?

Ans. : Yes

Tax : PAY SERVICE TAX!

13) How come u got such a Big Amount?

Ans. : Gift on Birthday

Tax : PAY GIFT TAX!

14) Do u have any Wealth?

Ans. : Yes

Tax : PAY WEALTH TAX!

15) To reduce tension, for entertainment, where are you going?

Ans. : Cinema or Resort

Tax : PAY ENTERTAINMENT TAX!

16) Hav u purchased House?

Ans. : Yes

Tax : PAY STAMP DUTY & REGISTRATION FEE!

17) How do u Travel ?

Ans: Bus

Tax : PAY SURCHARGE!

18) Any Additional Tax?

Ans. : Yes

Tax : PAY EDUCATION CESS, SECONDARY & HIGHER EDUCATION CESS & SURCHARGE ON ALL THE CENTRAL GOVT. TAXES !!!

19) Delayed any time Paying Any Tax?

Ans. : Yes

Tax : PAY INTEREST & PENALTY!

20) Do you want growth of India.?

Ans. : Of course, Yes

Tax : Then pay , WATER TAX, ROAD TAX, SWATCH BHARATH Cess, ETC. ETC.

INDIAN : Can I die now?

Ans. : Wait we are about to launch the FUNERAL TAX!

[vinit.merchant]

Taxing the PF, irrespective of whether this goes through or gets rolled back, raises questions.
Because, the Government has no immediate benefit on it. Contributions starting April 2016 will be taxed so everything in that account till March 16 is not to be taxed. So there are only two assumptions I can draw out of it
1. They seriously want people to opt for the annuity and not withdraw funds entirely and spend it out.
2. They believe they will be reelected couple of tenures and then they will benefit out of it.

But do they have any research done on this? How many just withdraw and use the funds? I mean expense it out. Most of what I hear is that these funds are re-invested somewhere in real estate and/or post office or FD or something safer and liquid, since at old age, you never know when you would need big sums of funds urgently.
I genuinely have my doubts on it. I do not think there is any study or research behind their statement that funds are withdrawn and used up (read as expensed out).


But if this kind of stupidity does gets implemented, then I would like to have an option to not opt for the contributions towards PF, which right now is more or less compulsory. In such a case, I would prefer to make my own investments and pay tax on it peacemeal, instead of at time of retirement, when all of us would most definitely be in the highest tax bracket and end up paying more taxes lumpsum. This way it hurts a lot. Also there are better tax free products in the market right now where I can invest, instead of PF.


Clarified that "Ram ki chdiya, Ram ka khet, kha lo chidiya bhar bhar pet"


PS: Come to think of it, that is the reason why the PPF was not covered under this. Who in his sane mind would put his money in PPF if he cannot withdraw it without being taxed. Also, the effective interest rate on PPF would be 8.95 less 30% tax rate - 6.27%. And I am not even considering the tax on the principal amount.
Who at the PF department can do such complex calculations and how we can verify can be another thread in itself

Originally Posted by poloman

How many of were aware of the EPF notification on the change in EPF withdrawal rules which prohibits you from withdrawing the employer's contribution till you are 58. Also the change in the age for withdrawal from 55 to 58.

I wasn't aware of this. So now employer contribution cannot be withdrawn till 58.

[sukhoi]

Originally Posted by vinit.merchant

But if this kind of stupidity does gets implemented, then I would like to have an option to not opt for the contributions towards PF, which right now is more or less compulsory. In such a case, I would prefer to make my own investments and pay tax on it peacemeal, instead of at time of retirement, when all of us would most definitely be in the highest tax bracket and end up paying more taxes lumpsum. This way it hurts a lot. Also there are better tax free products in the market right now where I can invest, instead of PF.

PS: Come to think of it, that is the reason why the PPF was not covered under this. Who in his sane mind would put his money in PPF if he cannot withdraw it without being taxed. Also, the effective interest rate on PPF would be 8.95 less 30% tax rate - 6.27%. And I am not even considering the tax on the principal amount.

Precisely the point I have been discussing with friends.

I, for one, am ok if they want to make this EET (tax on interest component only) but then they should:
1) Do this for all PF products and not just EPF
2) Give me a choice whether I want to continue with a said product or not

In this case, it seems like a not-so-good move wherein they have not tried to cast a wider net by covering PPF but instead only covered EPF which they know they have complete control on (middle class salaried folks for whom this is a compulsory deduction). Had they targetted PPF also, folks would have stopped making deposits and maybe close account as well as soon as possible, new accounts might not be opened up.

[sdp1975]

Originally Posted by vinit.merchant

I wasn't aware of this. So now employer contribution cannot be withdrawn till 58.

There's another problem with the notification. It remains silent on what happens to the employer contribution+interest that remains with the PF department till 58. Does it earn interest ?

Note that dormant/inactive accounts don't earn interest beyond 3 years ( eg if you don't transfer your epf account to your new employer )

Trade unions have raised this point, but no clarification yet.