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This story is from June 12, 2005
Government opens a new account
Life will not be the same once experts complete the spadework to switch over to EET system.
NEW DELHI: You may have a No 2 account when the system for tax treatment of savings is overhauled, perhaps next year. It will, however, not be a numbar do account because future savings in a gamut of instruments - EPF, PPF, GPF, approved superannuation funds and recognised PF - could fall under it and these will be fully taxable on withdrawal.
Savings made before the system is changed could be lodged in the No 1 account, which will continue to enjoy tax sops at all three stages - investment, accumulation and withdrawal.
In this case, the existing PF or EPF account numbers will remain unaltered. The No. 2 accounts, which will suffer the tax at the withdrawal stage, could bear the old account number suffixed by an alphabet, say "A".
In this year's budget, the finance minister proposed a radical shift in tax treatment of savings, switching over from the present system of "exempt-exempt-exempt" (EEE) at all three stages of contribution, accumulation and redemption to a new regime of "exempt-exempt-taxed" (EET).
Officials said the committee will be tasked to resolve administrative issues before there is full migration to the EET system. This will involve questions of how savings already committed in a variety of instruments such as notified government deposit schemes, including NSC, PF, life insurance, annuity funds and tax-free public sector bonds, should be handled so that they do not get taxed on maturity or withdrawal.
The other set of issues relate to savings made after the switchover to EET.
"The committee wouldn't attempt to reinvent the wheel," said an official, pointing out that the Kelkar task force on implementation of the Fiscal Responsibility and Budget Management Act, which suggested switchover to EET, had itself drawn up a roadmap, which is likely to form the basis of the fresh exercise.
The answer could then lie in devising a new scheme, to be known as the Individual Savings Account (ISA), as was recommended by the Kelkar task force.
Savings made before the system is changed could be lodged in the No 1 account, which will continue to enjoy tax sops at all three stages - investment, accumulation and withdrawal.
In this case, the existing PF or EPF account numbers will remain unaltered. The No. 2 accounts, which will suffer the tax at the withdrawal stage, could bear the old account number suffixed by an alphabet, say "A".
In this year's budget, the finance minister proposed a radical shift in tax treatment of savings, switching over from the present system of "exempt-exempt-exempt" (EEE) at all three stages of contribution, accumulation and redemption to a new regime of "exempt-exempt-taxed" (EET).
But without making any change for the present, he proposed to set up a committee of experts that will work out the roadmap for moving towards an EET system.
Officials said the committee will be tasked to resolve administrative issues before there is full migration to the EET system. This will involve questions of how savings already committed in a variety of instruments such as notified government deposit schemes, including NSC, PF, life insurance, annuity funds and tax-free public sector bonds, should be handled so that they do not get taxed on maturity or withdrawal.
The other set of issues relate to savings made after the switchover to EET.
"The committee wouldn't attempt to reinvent the wheel," said an official, pointing out that the Kelkar task force on implementation of the Fiscal Responsibility and Budget Management Act, which suggested switchover to EET, had itself drawn up a roadmap, which is likely to form the basis of the fresh exercise.
The answer could then lie in devising a new scheme, to be known as the Individual Savings Account (ISA), as was recommended by the Kelkar task force.
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