Text Practice Mode


created Feb 10th, 08:38 by Mayank Notani



213 words
50 completed
The government should move to a rational way to tax savings in the coming budget to encourage Indians to save intelligently. Reform is warranted to break away from the piecemeal approach to tax treatment of savings now in vogue. The Public Provident Provident Fund is tax exmept at all three stages of contribution, accumulation and withdrawl, whereas subscribers to the National Pension System pay tax at maturity. A rational approach to tax treatment of savings is the one that was proposed in the original Direct Taxes Code. Specify a reasonable amount of savings that is exempt from taxation of current income. Whether savings are deployed in short- lor long term assets should not matter. Exempt the contribution, exempt the accumulation, and tax the withdrawl at normal income tax rate. In this system, called exempt-exempt-tax or EET, tax should be charged only on the part of the income used for consumption.If at the maturity of a saving asset, the accumulated savings were to be reinvested in another savings scheme, the corpus would be exempt from tax. The EET method will remove artificial distortions, and raise efficiency and equity in the tax system, helping the government raise more revenues. It will not discourage people from churning their portfolio: reinvested gains will not attract tax.  

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