After Backlash, Government Withdraws Controversial EPF Tax Scheme

"I felt middle-class people were being hurt by the government, so I decided to put some pressure on the government...my pressure did work," Mr Gandhi said today.

Mr Jaitley announced the rollback in a short speech in the Lok Sabha on Tuesday morning. The government would like to conduct a "comprehensive review" of the proposal, he said.

The tax, announced in the Union Budget last week, has been criticised not only by the opposition as "anti-middle class", but also by affiliates of the ruling BJP's ideological mentor, the RSS, like the Bharatiya Mazdoor Sangh or BMS.

The minister said today that a Budget proposal to make 40 per cent of the total withdrawal from the National Pension Scheme or NPS tax free, announced along with the EPF scheme, will however remain unchanged.

The reversal was seen as a foregone conclusion after Prime Minister Narendra Modi on Saturday asked the Finance Minister to carry out a detailed examination of the policy and to defer the changes till that exercise was finished.

The PM took a purely political call in view of the resentment and confusion the Budget announcement had created among salaried employees in the private sector. The EPF is a retirement benefit scheme for salaried employees.

Mr Jaitley had proposed in the Budget that after April 1 this year, 60 per cent of the amount deposited in the EPF account of the employee would be taxable at the time of withdrawal, and 40 per cent would be tax free.

Mr Jaitley said today that the idea behind the EPF tax was to create a pensioned society.  "The policy objective is not to get more revenue but to encourage people to join the pension scheme," he said, adding, that other measures "can also achieve the same policy objective."

The minister said lawmakers and others had written to him against the EPF tax. "The main argument is that the employees should have the choice of where to invest. Theoretically such freedom is desirable, but it is important for the government to achieve policy objectives by instrumentality of taxation," Mr Jaitley said.

The government argued that its EPF proposal would affect only high earners in the private sector - about 60 lakh of the 3.7 crore people who contribute to the EPF and who, it claims, have used the EPF scheme to evade taxes.