Whatever strategy you plan, do so only for the current financial year. The tax planning exercise is set to change once the new direct tax code comes into effect from April 2011. We still have to read the final print, which is awaited.
"Both the PPF and the EPF, which are currently under the EEE regime, are likely to move to the EET regime of taxation as mentioned in draft proposal. This implies the final corpus accumulated through these investments will be taxable in investors' hands," says Vikas Vasal, executive director of KPMG.
As per current stipulations, these investments are neither taxed at the time of investment, nor at the time of the maturity. If the draft code was implemented without any changes, these investments would be basically exempted at the time of investment and during the tenure of the investment. But the final corpus would be subjected to tax proceeds at the time of maturity/sale of the investment.
However, investors will benefit from the grandfather clause. "If an individual has accumulated Rs 10 lakh till March 2011 and accumulates Rs 2 lakh in the next two years, the latter would be added to the investor's taxable income. Depending upon his tax slab, the investor has to pay a certain percentage as tax on Rs 2 lakh at the time of maturity and not the entire Rs 12 lakh," adds Vaibhav Sankla, executive director of Adroit Tax Services.
