Your savings account to be kept in 2 parts

NEW DELHI: As government moves towards tax treatment of savings, your savings account (Individual Savings Account, ISA) will be maintained in two parts — tier I and tier II. The mandatory pension contributions will flow into tier I and will not be allowed to be withdrawn till the contributor attains the age of 60. All other contributions will flow into tier II which can be withdrawn by the contributor at any time — there will be no lock-in period.
The new exempt-exempt-taxed (EET) regime will apply to both tiers, where contributions will be fully deductible from the taxable base, accumulations will be exempt but all withdrawals (including those in the event of death) will be included in the taxable income and taxed at the appropriate rate of tax.All withdrawals, the Kelkar task force had recommended, should be subject to a tax deduction at source at 20 percent.
This is about contributions/savings made after the change in tax system. But how about contributions/savings committed earlier? Going by the Kelkar task force, a scheme for "grandfathering" of savings incentives may have to be devised.
"Grandfathering" means an alteration of the rules that apply to certain investment or investment techniques while stipulating that investment actions taken before a certain date remain subject to the old rules.
The implications could be the following:
Payment of premium for life insurance policy: While the premium paid on existing policies will no longer be eligible for tax rebate after the abolition of Section 88, the amount received on maturity of such policies will continue to be exempt under Section 10(10D) of the Income-Tax Act.
Payment under a contract of deferred annuity: The contributions to any existing deferred annuity plan will no longer be eligible for tax rebate. The tax treatment of contributions to a new deferred annuity plan, however, will be government by the EET system.