New Taxes Code: Greater incentives for savings

The draft Direct Taxes Code proposes raising tax exemption limit on savings to Rs 3 lakh from the present Rs 1 lakh, while suggesting taxing money withdrawn from savings schemes like PPF, EPF and GPF.

"The limit for deduction for savings has been substantially increased to Rs 3 lakh," an official statement said on the new tax code, which has been put up for public comments.

With regard to withdrawals from savings schemes, the code suggested that these should be taxed under the EET (Exempt Exempt Taxation) mode of tax, implying that the tax should be levied at the time of withdrawal.

 

With regard to PPF and other pension fund schemes, the code said the government should continue the tax exempt status to withdrawals of amounts accumulated up to March 31, 2011.

The contributions to the PPF and pension schemes after the commencement of the code, it added, should be subject to EET mode of taxation.

Unlike various other saving schemes, withdrawals from PPF, EPF and GPF are not taxed at the time of withdrawal. Withdrawals, it said, should be included in the income of the assessee during the relevant year and taxed accordingly.

EET mode of taxation, the code said would encourage long term savings by the people.

Besides, the code also suggested that retirement benefits would be exempt from tax if saved in the Retirement Benefits Account.