Retirement benefits off tax net
Giving relief to the working class, the government has decided not to tax withdrawals from provident funds, pension schemes and life insurance schemes in the revised draft Direct Taxes Code (DTC) released on Tuesday.
The government intends to introduced the DTC in the monsoon session of the Parliament to replace the current Income-Tax Act.
In the earlier draft of the DTC released last August the finance ministry had proposed to tax all the tax saving instruments at the time of withdrawal. However, the limit of tax saving was increased to Rs 3 lakh in a financial year. The proposal to tax all tax saving instruments was opposed by various bodies.
“It is proposed to provide the Exempt-Exempt-Exempt (EEE) method of taxation for government provident fund (GPF), public provident fund (PPF) and recognised provident funds (RPFs) and the pension scheme administered by Pension Fund Regula-tory and Development Authority,” said the revised DTC. It said that the approved pure life insurance products and annuity schemes will also not be taxed during withdrawal.
The representations to the finance ministry argued that countries where tax savings instruments were taxed had a social security system for all their citizens. “It has been represented that in India, in the absence of a universal social security system, the proposed EET (Exempt-Exempt-Taxation) method of taxation of permitted savings would be harsh. Tax payers require some flexibility in making withdrawals in lump sum without being subjected to tax,” said the ministry.
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