New PF Tax Amendment - Ending "Interest Subsidy" in Unpopulist way

Ok so first of all let me say that this proposal of taxing the 60% of withdrawal of PF (Provident Fund) amount at time of maturity is really a bold step and may be one of the most Un-populist step taken by any government in recent times affecting large section of middle class. It might have been done to make it equal to other tax saving options but can have negative impact on popularity of NDA government and also this tax change doesn't apply on PPFs that many people invest into for tax saving that has 15 years lock-in period. 

As per new rule if you are withdrawing PF at maturity time, 60% of total amount will be taxable unless you invest that amount again into an annual pension scheme of government that pays you monthly pension amount. The total amount will not include the money deposited in PF until March 2016, that means:

• If you are an existing PF account holder and have deposited 5 lakh in your PF account so far, this 5 lakh will be tax free totally, and 60% of the amount added from April 2016 till the maturity time will come under consideration for tax.

• If you are new PF account holder from April 2016, whatever you deposit into PF account, 60% of that will come under consideration of new tax proposal.

• Not only this, if employer contribution is more than 1.5 lakh in a year, that amount also will be taxed on annual basis based on same rule, so it will become tax on already taxed income at time of maturity.  

Now to understand PF, it is called “Interest Subsidy” by many economists, because first of all almost 17% of your CTC (combing Employee + Employer share) becomes tax free , then you get the highest possible risk free compounding interest ( more than 8-9% ) on it by Government year on year and then at time of maturity it used to be totally tax free so far before this new budget proposal, so may be Modi government has tried to break this jinx of one more subsidy too like other subsidies.

It is up to individuals how they read this move and Government might revert this decision in future, but as per government it is done to give level playing field to other investment options like NPS. As per Government, entire moto of PPF is to make source of constant income post retirement called Pension and if you opt for pension with that 60% of PF amount, you are still not paying any tax :)