Financial Daily from THE HINDU group of publications
Thursday, Sep 29, 2005
Industry & Economy - Income Tax
Plan for EET-based savings taxation system by Oct 31
New Delhi , Sept 28
A DETAILED plan to migrate towards an EET-based taxation system for all kinds of savings is likely to be ready by October 31. An expert committee set up by the Finance Ministry to prepare a roadmap for this purpose has been asked to submit its report by this date.
"Our report has to be submitted by October 31. We are examining about 90 different types of savings instruments. Our effort would be to ensure that there is no lopsided advantage to any particular instrument on account of implementation of the EET system," said Dr R. Kannan, Chairman of the expert committee, told newspersons on the sidelines of the 7th Annual IIEF Pension Policy Conclave 2005.
The Finance Minister, Mr P. Chidambaram, had in this year's Budget announced plans to set up a committee of experts to work out the road map for moving towards an EET system.
He had underscored the need for resolving a number of administrative issues before moving to an EET system for all kinds of savings.
Dr Kannan indicated that the roadmap would not advocate complete migration to an EET-system at one go for all savings instruments.
He also said that the committee was convinced that there was merit in adopting an EET-based system although it may not be possible to implement it for all kinds of savings instruments.
"There are savings instruments for which EET can be implemented in a short span. There are also some for which EET is not desirable for at least 3-4 years. We also have certain savings instruments for which EET cannot be implemented."
Under the EET taxation system, exemption (E) from tax is available at the two stages of contribution and accumulation towards any savings schemes. But the withdrawals (last stage) are taxed.
Currently, most of the savings instruments work under the EEE (exempt-exempt-exempt) model. This means that there is no tax at the three stages of contribution, accumulation, and withdrawals.
Dr Kannan also indicated that the six-member committee favoured a tax deduction at source (TDS) approach for implementing the EET system.
The TDS approach is being preferred on account of the administrative convenience, he added. This implies that the committee is likely to recommend that TDS should be used for collecting the tax at the last stage - the withdrawal stage.
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