Government drops plan to tax Provident Fund, pension
The Direct Taxes Code, which was released on Tuesday — and likely to come into force from next year — makes no mention of tax provident fund and other pension funds at the time of withdrawal. HT Correspondent reports. Nothing to feardelhi Updated: Jun 16, 2010 01:11 IST
The government has abandoned a controversial proposal to tax provident fund and other pension funds at the time of withdrawal.
The Direct Taxes Code (DTC), which was released on Tuesday — and likely to come into force from next year — makes no mention of it.
The DTC also drops an earlier suggestion to treat perquisites like government accommodation as part of salary.
The government has thus rejected the plan to move to an exempt-exempt tax regime (EET) that would have allowed exemption only for incomes and accumulation in tax savings instruments but not at the final withdrawal stage.
“In the absence of adequate social security benefits, taxation of withdrawals from retirement benefits would be harsh,” the government said.
The public can comment on the proposals by June 30, after which the code will be drafted into a legislative Bill and placed before Parliament.
Officials said they expect it to become law before the next budget.
The revised draft is silent on tax slabs and rates proposed in the earlier draft released in August 2009. The DTC draft had proposed a sweeping rejig of the existing tax slabs that would benefit each one of India’s 3.15-odd crore tax payers.
Under the norms proposed then, income tax would be charged at 10 per cent tax for annual incomes between Rs 1.6 lakh and Rs 10 lakh, 20 per cent between Rs 10 lakh and Rs 25 lakh and 30 per cent over Rs 25 lakh.
This is a departure from the existing slabs where individuals are charged tax at 10 per cent tax on income between Rs 1.6 lakh and Rs 5 lakh, 20 per cent between Rs 5 lakh and Rs 8 lakh and 30 per cent above Rs 8 lakh.
Besides, the ceiling on tax savings investments is proposed to be raised to Rs 3 lakh annually from Rs 1 lakh now.
Revenue Secretary Sunil Mitra said the rates in the first draft were merely illustrative.