You get option in tax-saving FDs

The government has revised discussion paper (RDP) on the direct taxes code (DTC) after it got pressure from all section of people. The discussion paper contained some provisions especially related to the proposed exempt-exempt-taxed (EET) method of taxation that will provide relief to taxpayers.

Here we will discuss in brief about EET. EET is a tax system in which an investment in a tax-saving plan and interest earned on it is deductible from income. The maturity amount is also taxable. While in the current EEE system no tax is charged on investment, interest and the maturity amount. But in the new provision the Public Provident Fund (PPF) and company provident fund (PF) balances has been brought under EET method of taxation. Due to which there is major apprehension and anxiety among taxpayers. Though DTC had provided for a grandfathering clause, it was deemed woefully inadequate.

According to the original provisions of the DTC, on the withdrawal of any amount of accumulated balance in PPF/PF as on March 31, 2011 people don’t have to pay tax. But, in new contributions as well as on accumulation on or after the commencement of the DTC (April 1, 2011) will be subjected to the EET method of taxation. And everyone knows that as per rules no one can withdraw entire PPF balance at one go from its account except on maturity. Thus for most investors, only a part will be tax-free, while on all interest and accumulations post March 31, 2011 tax have to paid upon withdrawal or maturity.



Now in RDP it has been stated that PPF and PF will remain tax-free even under the new DTC. Moreover, any investments made before the date of commencement of the DTC, in instruments which comes under EEE method of taxation as per the current law will continue for the full duration of the financial instrument. This is the main point of worry for the investors.