New Delhi: A day after releasing a revised draft of the direct tax code (DTC), the finance ministry on Wednesday said its recommendations on exempting retirement savings are balanced and would not entail loss of revenue.
“EEE (exempt-exempt-exempt) is only for limited number of saving instruments. It (recommendation) is balanced,” said revenue secretary Sunil Mitra when asked about the rationale of watering down the original proposals.
Under EEE mode, contributions in certain savings schemes become tax-exempt as it is deductible from income, the accumulations are also exempt from tax till it remain invested and withdrawals are also not taxed. However, in EET, the first two steps remain tax-exempt, but withdrawals are taxed.
On the impact of the recommendations on revenue, he said, “Tax collection will increase or not it will all depends on rates. The rates we have not put just now. That will go in the legislation.”
In the revised draft taxes code, which will replace the 50-year-old Income Tax Act, the finance ministry decided to drop its earlier proposal to tax the government provident fund or the public provident fund withdrawals.
The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode.
The revised draft also puts pensions administered by the interim regulator PFRDA, including pension of government employees who were recruited since January 2004, under EEE treatment.
The government plans to introduce a draft legislation on the DTC in Parliament in the forthcoming monsoon session.
“If Parliament procedure is complete and it becomes a law, it will be implemented from April 1, 2011,” Mitra said on Tuesday.