All bank FDs may come under tax net

June 17, 2010 11:54 IST

Individuals could soon lose tax benefits available on fixed deposits with an over five-year term once the direct taxes code comes into force from April 2011.

Exemptions given on unit-linked insurance products, equity-linked saving schemes, national savings certificates and post office term deposits under Section 80 C of the Income Tax Act too may end next year.

The revised discussion paper on DTC released yesterday proposed to exempt provident fund, new pension system, approved pure life insurance products and annuity schemes from paying tax at the withdrawal stage. It did not provide any clarity on other saving instruments, currently exempted from tax at all three stages - investment, accumulation and withdrawal - called EEE (exempt-exempt-exempt) in tax parlance.

A finance ministry official said, "Ulips, fixed deposits,

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saving schemes will be taxed like another financial product. Tax relief should not be the driver for investment into any product."

The official said EEE products should provide social security. He added Ulips and term deposits were not compulsory like a provident fund and they did not serve any particular purpose like pure insurance policies which gave life cover.

The revised discussion paper noted that EET (exempt-exempt-tax) proposed in the first DTC draft was dropped because India did not have universal social security benefits for tax payers like most developed countries, which followed EET method of taxation for savings.

"The EET savings accounts, which operate for individuals in these countries, are over and above the mandatory social service payments received by them. In the absence of a universal social security system, the proposed EET method of taxation of permitted savings would be harsh," the paper said.

BS Reporter

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