Articles

So the recent PPF ruling has saddened you. Yes. That's bad news. No more will you be able to open PPF accounts under Hindu Undivided families (HUF), an association of persons or body of individuals from May 13, 2005.

But then the good news is that this will not affect existing HUF accounts. Also it is not applicable to individuals who plan to invest in PPF. In other words PPF continues to be one of those good investment avenues if you are considering attractive returns sans tax. But then there are certain changes with regard to taxation that will take place soon and you need to wait and watch.

For now the PPF offers 8 percent returns compounded annually. The returns are tax free and the maturity as well. Soon you can expect major changes to this structure in future. Which means presently it's the EEE (exempt, exempt, exempt) system that is being followed. And there are chances that the system may change over to EET (exempt, exempt, taxed) if the finance minister has his way.

Wondering what is EEE and EET?

Exempt, exempt tax (EET)

The EET system of savings schemes provides for tax exemption at the first two stages (contribution and accumulation) of savings but is taxable at the withdrawal stage. For instance, if a subscriber is contributing money to a provident fund, under the EET system, his contribution and the interest accumulation thereto will not be taxed, but the withdrawal of money from the fund will be taxed.

Exempt, exempt, exempt (EEE)

Under EEE the contribution, interest accruals and withdrawal are exempted from tax. These include instruments such as deferred annuity plans, provident funds, superannuation funds, post office savings bank deposits, securities of the central government, national savings certificates, equity and debentures of infrastructure companies and certain pension funds of LIC.

The finance minister in his budget had proposed the setting up of a committee that would look into the details of the existing schemes and recommend ways in which a smooth transition could take place to an EET regime.

But then there are major issues to be sorted out. Firstly, most of the above tax saving instruments are long duration ones and many individuals have parked their retirement funds in them. Individuals had carefully chosen these instruments considering the tax benefits as well as the attractive returns they promised then.

Taxing these on maturity abruptly will not be acceptable as it can have a major bearing on the financial security. So all those of you worried about the same can rest assured that the FM will not retrospectively tax your money.