Friday, August 14, 2009

Retirement schemes face tax on withdrawals

The draft Direct Taxes Code, released by the government on Wednesday, proposes to tax all
withdrawals from retirement schemes, but raises the exemption limit on savings to Rs 3 lakh from the present Rs 1 lakh.
However, contributions to short term investment schemes including insurance, mutual funds and fixed deposits will no longer get exemption if the code is accepted by the Parliament.
Under the existing norms, investments in certain instruments like public provident fund, employees provident fund and government provident fund are not taxable at all the three stages — at the time of investments, the amount is deducted from your taxable income, during the period of investment when interest accrues it is not taxed and at the time of withdrawal too no tax is payable.
This is what in tax jargon is called the exempt-exempt-exempt (EEE) treatment, which will now change to EET, meaning the last stage will be taxed.
There is an important caveat here. The tax exempt status currently available to withdrawals would continue to apply to amounts accumulated in post-retirement savings schemes like PPF and EPF up to March 31, 2011. In other words, only money that accrues after that date will be taxed on withdrawal.
For instance, if your PPF account has a balance of say Rs 10 lakh on March 31, 2011 and that grows to say Rs 25 lakh a few years, later thanks to your contributions and the interest adding up. When you withdraw this Rs 25 lakh, you will pay tax only on the Rs 15 lakh that has accumulated from April 2011.
This change in the treatment of savings means that post-retirement annuity schemes would become very attractive, since they do not involve lump-sum withdrawals after retirement.
The EET mode of taxation, the code said, would encourage long term savings by the people. All post-retirement savings, the code stipulates, would have to be in specified retirement accounts held with permitted savings intermediaries who would have to be approved by the Pension Fund Regulatory and Development Authority (PFRDA). On the face of it, this seems to pose a serious challenge for insurance firms.

No comments:

Just click away from joining most active Mutual Fund India google group

Google Groups
Subscribe to Mutual Fund india
Email:
Visit this group

Aggrasive Portfolio

  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
  • Fidelity Special Situation Fund (Stock picker Fund) 8%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

  • HDFC TOP 200 Fund (Large Cap Fund) 11%
  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
  • Reliance Regular Savings Fund - Balanced Option (Balance Fund) 16%
  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Principal Large Cap Fund (Largecap Equity Fund) 8%
  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

  • IDFC Premier Equity Fund (Stock Picker Fund)
  • Principal Emerging Bluechip Fund (Stock Picker Fund)
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund)
  • JM Emerging Leader Fund (Multicap Fund)
  • Reliance Regular Saving Scheme (Equity Stock Picker)
  • Biral Mid cap Fund (Mid cap Fund)
  • Fidility Special Situation Fund (Stock Picker)
  • DSP Gold Fund (Equity oriented Gold Sector Fund)