Pension products offered by insurers and mutual funds could be included in the long-term savings schemes eligible for tax concession available to individual under the new Direct Taxes Code provided they meet the norms laid out by the government.
The DTC Bill tabled in Parliament does not mention these schemes, creating the impression that investment in them will not be eligible for tax benefits, which could have reduced their attractiveness to individuals.
We will soon hold discussions with the department of financial services on the guidelines for pensions funds eligible for tax benefits, a Central Board of Direct Taxes (CBDT) official told Media.
However, these pension products will have to follow the uniform framework prescribed by the department of financial services for retirement products to be eligible for concessions.
These guidelines will specify details such as how much money can be withdrawn one time and when to discourage premature withdrawal and will ensure that they encourage long-term retirement savings.
The idea is to treat all pension products that follow an agreed framework and are in actual term a long-term savings on par, the official added.
The new DTC proposes `1 lakh exemption for individual taxpayers for contributions to retirement savings including provident funds, gratuity funds, new pension scheme, superannuation funds. Investments in these schemes will not be taxed at any stage contribution, accumulation or withdrawal as these are being including under the EEE category or Exempt-Exempt-Exempt category.
However, confusion prevailed over the tax treatment of these products in the industry. Pension funds run by mutual fund houses dont get covered under the DTC. This would create disparity vis-a-vis other pension products, UTI chairman and managing director UK Sinha said at an ADB conference in the capital.
Tax experts said the CBDT will have to separately notify such funds to make them eligible for tax benefits as the Bill as such does not provide for it.
The Bill lists out the schemes that will be eligible for incentives in the `1 lakh limit, but also gives the authorities the power to add more schemes.
Clearly, if any other scheme or fund is to be covered for this deduction, then it needs to be specially notified by the government, said Vikas Vasal, executive director, KPMG.