EEE to stay, no tax on withdrawal of savings
For individuals, the bill has proposed to continue with EEE method of taxation on investments up to Rs 3 lakh in a fiscal year in provident fund.
By Prabhakar Sinha, TNN |
NEW DELHI: The Direct Tax Bill has given bonanza to individual savers, as proposed in the revised Direct Tax Code (DTC) circulated in June 2010. However, the bill did not keep the promise of lowering the corporate tax to 25%, but kept it at the current level of 30%.
However, for individuals, the bill has proposed to continue with exempt-exempt-exempt (EEE) method of taxation on investments up to Rs 3 lakh in a fiscal year in provident fund, pension fund and pure life insurance products. Under EEE, tax will not be levied during all the three stages — when investment is made, interest earned and when the money is withdrawn.
In the original DTC, the finance ministry had proposed to levy tax at the time of withdrawal of savings, making it exempt-exempt-tax (EET). As a large number of people protested against EET method, in the bill, the government has proposed not to tax these investments even at the time of withdrawal.
The bill has also allowed tax deduction against the payment of interest on home loan up to Rs 1,50,000 in a year. This also did not figure in the original discussion paper circulated in August 2009. But in the revised discussion paper in June 2010, the finance ministry proposed to continue with the tax benefit on home loan, accepting the request of the construction sector.
The bill has some good news for companies too. It has decided to remove the surcharge of 10% and education cess of 3%. Because of the surcharge and cess, the effective tax rate on corporate works out to be 33.99%. So, the bill has given the corporate sector a benefit of tax reduction by around four percentage points.
The bill, it is learnt, has also decided to levy MAT at the rate of 20% of book profit as against the existing rate of around 18%. In the original discussion paper, the tax department had proposed to levy MAT on gross asset value. Faced with strong opposition from the corporate sector, the department in its revised discussion paper, had proposed to compute MAT with reference to book profit.
However, for individuals, the bill has proposed to continue with exempt-exempt-exempt (EEE) method of taxation on investments up to Rs 3 lakh in a fiscal year in provident fund, pension fund and pure life insurance products. Under EEE, tax will not be levied during all the three stages — when investment is made, interest earned and when the money is withdrawn.
In the original DTC, the finance ministry had proposed to levy tax at the time of withdrawal of savings, making it exempt-exempt-tax (EET). As a large number of people protested against EET method, in the bill, the government has proposed not to tax these investments even at the time of withdrawal.
The bill has also allowed tax deduction against the payment of interest on home loan up to Rs 1,50,000 in a year. This also did not figure in the original discussion paper circulated in August 2009. But in the revised discussion paper in June 2010, the finance ministry proposed to continue with the tax benefit on home loan, accepting the request of the construction sector.
The bill has some good news for companies too. It has decided to remove the surcharge of 10% and education cess of 3%. Because of the surcharge and cess, the effective tax rate on corporate works out to be 33.99%. So, the bill has given the corporate sector a benefit of tax reduction by around four percentage points.
The bill, it is learnt, has also decided to levy MAT at the rate of 20% of book profit as against the existing rate of around 18%. In the original discussion paper, the tax department had proposed to levy MAT on gross asset value. Faced with strong opposition from the corporate sector, the department in its revised discussion paper, had proposed to compute MAT with reference to book profit.
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