The Public Provident Fund (PPF) is often described as perhaps the only social security measure available to Indian investors. This might not remain so in the current form, if the government adopts the recommendations in The Economic Survey 2015-16.
PPF is one of the small savings schemes that have fixed deposit rates and compete with bank deposits. This Survey classifies such schemes, as 'actually small', not so small' and 'not so small at all'. And, PPF is categorised as 'not so small'. "The effective returns to PPF deposits are very high, creating a large implicit subsidy which accrues mostly to taxpayers in the top income brackets. The magnitude of this implicit subsidy is about six percentage points - approximately Rs 12,000 crore in fiscal cost terms,'' it says.
The Survey recommends India move in a phased manner to the EET method of taxation of savings. Wherein, the first E stands for tax exemption of the contribution, the second one for exemption of the interest income, and T for taxation of the principal (and interest) when it is withdrawn.
"Interestingly, the New Pension System (NPS) is already being subjected to the EET method of taxation. Therefore, deductions under Section 80C and 80CCD should be re-assessed to move toward a common EET principle for tax savings," the Survey says.
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