The tax on withdrawal

The tax on withdrawal

When you look at the taxability of a certain investment, there are three aspects to consider:

1) Tax when you make the investment

2) Tax on the income you earn from such an investment

3) Tax on the maturity of the investment

For example, if you invest in a pension fund, the annuity (amount the insurance company pays you regularly as an income) may be taxable. But, your returns in a PPF are not.

This obviously creates a bias in the minds of the investors against the taxable investment option.

In order to remove this bias, the tax department has proposed to move towards EET (Exempt, Exempt, Taxed) basis of taxation through the three stages mentioned above.

According to this method of taxation, all investments would be taxable on receipt/ withdrawal/ maturity from such investment.

Hence, all investments are now in one basket - Section 80C - in order to facilitate this EET based taxation.

If the EET basis of taxation is made applicable, then the investment would become taxable at the time of receipt/withdrawal.

That means that your PPF too would be taxable. Most probably only amounts from this year onwards.