Rethink plan to tax PF,NSC withdrawals: PM

PM has asked the Finance Ministry to review the proposal in the draft Direct Tax Code to bring long-term savings instruments under EET regime.

Prime Minister Manmohan Singh has asked the Finance Ministry to review the proposal in the draft Direct Tax Code to bring long-term savings instruments such as Provident Fund and National Savings Certificates under the Exempt-Exempt-Tax (EET) regime.

As per this,investment and accrual would be exempt from tax but tax would kick in during withdrawal.

Sources said the Prime Minister has suggested that the DTC focus primarily on the aam aadmi. An official said that an EET regime would discourage employees from withdrawing all their money at the time of retirement.

Story continues below this ad

Just ahead of Budget,the Finance Ministry had scheduled a meeting with the PM seeking his guidance on the draft DTC. The PMO wrote back asking it to review the EET proposal while redrafting the code.

Finance Minister Pranab Mukherjee has announced that DTC would be introduced in the next financial year. Its final draft is expected to be tabled in Parliament in the monsoon session.

Mukherjee has already identified nine areas of concern. Of these,three require a political call the EET regime for retirement savings,the 2% minimum alternate tax on gross assets of companies and the proposal to tax charitable organisations at 15%. Its the EET regime thats drawn maximum flak. The BJP has slammed the proposed code saying it discourages savings.