Ambitious new bankruptcy code may take years to clean up India's debt mess. Pictured: An employee counts Indian currency notes at a cash counter inside a bank in Kolkata, 18 June, 2012 [Representational Image]Reuters

In what could be a disappointment for millions of people in the country, the government has decided to levy tax on the withdrawal of employee provident fund (EPF) from April 1, 2016.

"In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 per cent of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016," said Finance Minister Arun Jaitley while presenting his third budget on Monday.

At present, PF withdrawals are fully exempted from income tax if an employee continues in the service for five years.

However, once the new rule becomes effective from April this year, employees will be required to pay income tax on 60 percent of the PF withdrawal amount, while the remaining 40 percent is exempt from tax, experts told NDTV Profit.

The tax on PF withdrawals will be based on the tax slab of the employees, analysts said.

"This has been done with the aim of aligning the tax treatment of long-term retirement products... it will be applicable to contributions made after 1 April 2016," says Parizad Sirwalla, National Head-Global Mobility Services-Tax, KPMG.

In his budget speech, Jaitley also said that the government will pay 8.33 percent of the Employee Provident Fund (EPF) for all new employees for the first three years. The move is aimed at creating more jobs in the country.

The government will contribute the amount on behalf of the employers and has set aside Rs. 1,000 crore for the programme.

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