In our current tax law structure, the Exempt-Exempt-Exempt (EEE) is active. On the introduction of Direct Tax code (DTC), the Exempt-Exempt-Tax (EET) will be active. In simple words, you can say that any amount withdrawal of income from saving instrument will be taxable after the commencement of the Direct Tax Code (DTC) would be governed by the EET method of taxation.
See: What is EEE or EET or ETT in Terms of Taxation?
Income from Residuary Sources
The DTC will introduce the new head of income ‘residuary sources’ as per section 56. Section 56 of DTC add that the amount invested in permitted investment, including dividend, bonus, interest, when actually withdrawn by the person is taxable under the head ‘residuary sources.
Change of Thinking
The EET would change the investment preference of the taxpayers as comparison to the current structure. In our country, the most of the taxpayer invests in tax saving instruments from sept. to march, obtaining the view to save more tax. After withdraw it is exempt. On the introduction of DTC, it will be taxed. So why a taxpayer, who has the mind to invest in saving instrument to save tax will invest in these instruments.
Retrospective Effect
Now, a question is which investments are coming under EEE or EET. The DTC says that withdrawal of any amount as on March 31, 2011, will not be subjected to EET method of tax and only new contributions after the commencement of the DTC would be governed by the said EET method of taxation.
No Social Security after Retirement
A salaried taxpayer will pay tax, whenever he needs to draw any fund for his necessity. All panning for post-retirement with exempt terminal of his withdrawals would be an end. So how a middle salaried employee think about his social security after Retirement.
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its very usefull information.thanks a lot
The LS Opposition Parties should “hoot out ” the Direct Tax Code that allows for taxation of EEE of today that matures after 31st March,2011.
For eg.if PF Moneys that are the ONLY Social Security of citizens becomes “chargeable to EETax” when they retire and withdraw for their sustenance in their remainder Life,then it is nothing but “LOAD OF LOOT BY THE GOVT.OF INDIA”. The citizens of this Land will NOT SPARE THE POLITICIANS and the bureaucrats who are taking advantage of this. SWINDLERS ALL.
There is one aspect which has been ignored ind discussions about the proposed EET regime. Low paid employees whose income is below the taxation limit, would not be saving any tax when they contribute (which is compulsory) to their Provident Funds. But when they retire the accumulated amount would take their total income far above taxation limit and may even take it to the highest slab. In their case it is not deferment of taxation but fresh taxation which would not have been there if they did not contribute to Provident Fund at all but put the money in Bank Deposits. If it is proposed to introduce EET or ETT it should be ensured that savings for which no tax relief was claimed are exempted when withdrawn (Similar provision is available for premature withdrawals from Senior Citizen’s Scheme)