No EET likely on existing saving schemes

Revenue secretary KM Chandrasekhar today indicated that existing saving schemes like public provident fund and life insurance policies would not be taxed as per the EET (exempt exempt tax) system of taxation.

"The EET system will apply to the new schemes and the existing schemes would not be covered," Chandrasekhar told reporters on the sidelines of a seminar organised by Assocham.

This implies that the existing taxation system will continue on the saving instruments. Under the EET system contributions and accumulations on investments are exempt from the purview of income tax and tax is levied only at the time of withdrawal.

A committee headed by SBI Life Insurance actuary R Kanan is expected to submit its report towards the end of the month.

The committee was scanning short-term and long-term saving instruments to find out which schemes could fall under the ambit of EET. If an instrument does not fall under the EET system then the panel may suggest ways to insert a sunset clause of four-five years.

Tax practitioners, however, said this may be difficult to implement as it will be difficult to differentiate between accretions to, say a life insurance policy, in the first seven years, when the EET system was not in place, and the remaining 13 years when the new mechanism was adopted.

Chandrasekhar said the government would examine the report and decide if the EET principle, necessitated due to the new pension system, would be implemented from the next financial year or not.

He said the model was proposed to ensure balance between consumption and savings in the future.

Finance Minister P Chidambaram had announced the establishment of the committee to examine the EET system of taxation for all saving instruments.

The system has already been introduced in the defined contribution pension scheme applicable to Central government employees who joined after January 1, 2004.