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Check How DTC Will Take Away The Tax Exemptions Available Under Income Tax Act 1961 On Small Saving Funds

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Government of India have recently raised the interest rates on small saving schemes to align to the other schemes available in the market. This reform have been made to maintain the interest of investors under these schemes. The small saving schemes includes PPF, NSC, Post Office scheme and MIS are government schemes, where investors get tax concession on there investment.

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Revised Interest Rates On PPF, NSC, MIS & Post Office Savings W.E.F 1 Dec 2011

But as we all know Direct Tax Code (DTC) is expected to come in the coming year which will replace the existing income tax act. Then what is going to happen with the existing concessions on these schemes. Lets have a clear understanding of tax concessions on small saving schemes under income tax act 1961 and direct tax code (proposed).

PUBLIC PROVIDENT FUND (PPF)

Income Tax Act 1961

Direct Tax code

Investment under PPF get deductions subject to an overall limit of Rs 1Lakh per FY under section 80C Investment under PPF will get the same deduction under DTC.
Interest on PPF is tax free. Interest on PPF will be tax free under DTC.
Withdrawal from PPF account is tax free. Withdrawal from PPF account will be tax free under DTC.

 

Note :- Latest changes made by the government which includes increase in the interest rate from 8% to 8.6% and increase in annual investment ceiling from Rs. 70,000 to Rs.1 lakh will generate more tax-free income for the taxpayers.

NATIONAL SAVING CERTIFICATE (NSC)

Income Tax Act 1961

Direct Tax code

Investment under NSC get deductions subject to an overall limit of Rs 1Lakh per FY under section 80C No Deduction :- As per proposed DTC, investors will not get any deductions on investment under NSC.
Interest on NSC is taxable. Interest will be taxable.
Interest on NSC also get deduction under section 80C in case of reinvestment (except in maturity year)

 

Note :- Latest changes made by the government which includes reduction in maturity period from 6 to 5 years and new 10 year NSC scheme may attract more investors.

POST OFFICE TIME DEPOSIT

Income Tax Act 1961

Direct Tax code

Investment under 5 year Post Office Time deposit scheme gets deductions under section 80C No Deduction :- As per proposed DTC, investors will not get any deductions on investment under Post Office Time Deposit Scheme.
Interest on Post Office Time Deposit is taxable . Interest will be taxable.

 

POST OFFICE SAVING ACCOUNT

Income Tax Act 1961

Direct Tax code

Interest income of R3,500 (in a single account) and R7,000 (in a joint account) from this account, is exempt from tax under Section 10 (15). No Tax Exemption:- As per proposed DTC, no tax exemption will be there on invest earned from Post office saving account.

While the rate of interest in this account has now been increased from current 3.5% to 4%.

POST OFFICE RD

Income Tax Act 1961

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Direct Tax code

No tax concession is there on investment under 5 year recurring deposit (RD) scheme No Tax Exemption :- As per proposed DTC, no tax exemption will be there on investment under Post office recurring deposit (RD) scheme.

 

POST OFFICE MIS

Income Tax Act 1961

Direct Tax code

No tax concession is there on investment under Post office MIS scheme No Tax Exemption :- As per proposed DTC, no tax exemption will be there on investment under Post office MIS scheme.

 

Note :- The government has reduced the maturity period of MIS from 6years to 5.

SENIOR CITIZENS SAVING SCHEME

Income Tax Act 1961

Direct Tax code

Investment under Senior Citizens saving scheme is deductible under section 80C, subject to an overall limit of Rs 1Lakh per FY. No Tax Exemption :- As per proposed DTC, no tax exemption will be there on investment under senior citizen saving scheme
Interest earned is taxable Interest earned is taxable.
Tax Deducted at source (TDS) is applicable if interest exceeds Rs 10,000 per annum.

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