Small savings may have 5-yr lock-in

Presently, a clutch of such schemes are not taxed at any of the three stages — deposit, earnings and withdrawal. Also, lock-in clauses — the minimum time for early withdrawal — vary across the schemes, while there is also flexibility in their implementation.

“It is an open house now (as regards the enforcement of the bar on premature withdrawals). The proposal is to bring in more discipline and encourage people to go for long-term savings,” an official said.

For instance, in case of the public provident fund (PPF) scheme, an account matures after 15 years, and premature withdrawal is permissible every year after five years. The subscriber is, however, allowed to avail loans from the PPF account after one year. Similarly, early withdrawals from all post-office time deposit accounts are allowed after six months.

The committee has proposed neutrality in tax treatment to all small savings schemes, insurance policies and pension products. The panel said taxing withdrawals when the subscriber’s income streams are strong would be an incentive for deferment of withdrawal. The committee also noted that post-retirement withdrawals would be less taxing.

The EET scheme would be prospective in effect. That is, the proposed tax at withdrawal stage would not be valid for investments made up to from April 1, 2006. Pre-EET investments would be exempt on pro-rata basis. Small savings schemes that are under the EEE regime at present include PFs, deferred annuity plans, post office savings bank deposits etc.