The budget has also proposed to remove the tax exemption under Section 10(10d) to Ulips with a premium of more than Rs 2.5 lakh a year. This will not apply to existing Ulips, but only to policies sold after 1 February this year.
This is not the first time that the government has proposed to tax PF money. The 2016 Budget had proposed that the interest accrued on 60% of the EPF be taxed. The proposal was rolled back after a massive outcry against the new levy.
However, the proposal may not face as big a backlash this time because it affects only the creamy layer of salaried employees. The Rs 2.5 lakh annual threshold means that a person contributing up to Rs 20,833 a month to PF (basic salary of up to Rs 1.73 lakh a month) will escape the tax.
At the same time, the new Wage Code which comes into effect on 1 April has laid down that the basic salary must be at least 50% of the total income of the individual. This means the salary structure will have to be rejigged with a higher basic salary, which will automatically increase the contribution to the PF.