Budget may spare your PF, insurance

NEW DELHI: Investors in savings schemes may breathe easy. Fearing political opposition, the government may put off implementation of an expert panel���s recommendations to tax them at the time of withdrawal.

The recommendations of the committee to examine the EET (exempt at the contribution stage, exempt at the earning or accrual stage and tax at withdrawal) method are only expected to be made applicable to the new pension scheme. Even here a final decision on using the EET method is yet to be taken due to the uncertainty surrounding the new pension system for government employees which is being opposed by the Left.

In the last budget, finance minister P Chidambaram had sought a review of the taxation policy for all savings instruments and a committee had been set up. It submitted its report over a month ago.

There was an opinion that the implementation of the new taxation system could be unpopular with the middle class as it will lower the returns on schemes like insurance policies and PPF.

The trade unions and the Left parties have been critical of the government���s move to cut interest rate on EPF to 8.5% this year from 9.5%.

Besides, tax experts said, administratively too the recommendations needed to be studied carefully before they were implemented. Putting in place a sunset clause to end the tax benefits on a specified date was one of the options being talked about.

The rationale for the review was not just to raise revenue. It was also felt that the present tax regime resulted in a bias towards certain savings schemes, particularly those like PPF, which enjoyed tax breaks at all the three stages.

For instance, the present provisions of the I-T law allow for a deduction of Rs 10,000 for investment in annuity schemes offered by the life insurance companies, but the amount received at the time of withdrawal is subjected to the applicable rate of income tax.

In fact, with the aim to shift to EET, in the last Budget, the government had decided to do away with the rebate for investment in savings schemes to a system of deduction, where investments in the permitted schemes, can be reduced from the income and then tax calculated on the remaining amount.