Extension of tax waiver to private PF trusts likely

Out of 2,700 PPFTs, only 284 have so far been given the exemption certificates from the Labour Ministry while 400 applications are under process

With some 4.6 million employees facing threat of losing income tax waiver on retirement benefits, the government indicated that the I-T exemption to about 2,400 private provident fund trusts would be incorporated in the 2012-13 Budget.
The Finance Ministry is willing to extend tax exemption to private provident fund trusts (PPFTs) in the Budget for 2012-13 in the interest of a “large working population”, an official said. “We may consider it...,” he said.

On its part, the Labour Ministry will soon approach the Finance Ministry for continuation of the tax exemption for the PPFTs, as denial of the tax benefits would impact retirement benefits of about lakh employees.

In 2006, former Finance Minister P Chidambaram had made it mandatory for all PPFTs to seek exemption certificates from the Labour Ministry within a year for enjoying the tax benefits.

Since all these trusts could not get the exemption certificates in that year, annual waiver was being given by successive budgets, on request from the Labour Ministry.

However, the Labour Ministry could not send any such request this year with a result that the Budget for 2012-13 did not find a mention about extending the waiver.

“The Labour Ministry will soon approach the Finance Ministry in this regard,” an official in the Labour Ministry said.

Out of 2,700 PPFTs, only 284 have so far been given the exemption certificates from the Labour Ministry while 400 applications are under process.

The issue has serious implications for both employees and employers. In the absence of waiver, annual accretion to the PF is considered part of salary and is thus taxable. Secondly, income generated out of investment of the trust would attract tax. Moreover, deduction allowed to employers on contribution to the PF fund would also go, officials said.

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ELSS better investment option than PPF, NSC: CRISIL

“Our analysis shows that ELSS gave 26% and 22% annualised returns over three and 10 years, respectively, vis-a-vis 8-9% offered by traditional tax saving investment products such as PPF and NSC,” CRISIL said

Investments in an equity-linked savings scheme (ELSS) of a mutual fund have yielded higher returns compared to other instruments like PPF and NSC in the last few years, a report by CRISIL has said.

“Our analysis shows that ELSS gave 26% and 22% annualised returns over three and 10 years, respectively, vis-a-vis 8-9% offered by traditional tax saving investment products such as public provident fund (PPF) and national savings certificates (NSC),” CRISIL said.

CRISIL added that interest on employees provident fund (EPF) for 2011-12 was slashed to 8.25% from 9.5% in the previous year and thus ELSS can act as a strong alternative to investors.

Though the traditional debt products are considered to be relatively safer bet as they are not affected by volatility, they are unable to generate higher inflation-adjusted returns in the long run.

The PPF accounts fetched 8.12% over the last 10 years and in the similar period, the NSC gave an interest of 9.10%. The average inflation over the past 10 years stood at 6.05%.

“ELSS is not only an attractive option to save tax, but also helps create wealth over the long run. ELSS as a category has outperformed the Nifty 500 across three and 10 years. With average inflation around 7% over the past three years, top CRISIL-ranked ELSS gave an inflation adjusted return of 14%, which is significantly higher than returns offered by other tax saving products,” CRISIL's senior director Mukesh Agarwal said.

The rating agency, however, cautioned that the ELSS investment requires some amount of market risk and had to cherry pick those schemes which have performed consistently well.

“Since investments in ELSS are subject to market risks, investors must take into consideration their age and risk-taking abilities. The investment horizon should be more than five years for higher inflation-adjusted returns.

“Further, investors must choose funds that have performed well both in good and bad times,” CRISIL head for funds and fixed income research Jiju Vidyadharan said.

It said ELSS is not eligible for tax benefits under the DTC, but since the implementation of the new tax regime has been postponed, investors can park their funds in these equity schemes for now.

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COMMENTS

R Balakrishnan

5 years ago

With a start year 2001, results lead to optimistic conclusions. Timing makes the difference between positive or negative. A sweeping statement is misleading. PPF and ELSS comparisons are odious.

Sahara Life launches Sahara Nivesh

Sahara India Life Insurance has launched a single premium (non-ULIP & non-participating) endowment plan, 'Sahara Nivesh Bima’

Sahara India Life Insurance has launched a single premium plan—'Sahara Nivesh Bima' in Lucknow.

Sahara India Life Insurance, the life insurance company of Sahara India Pariwar, has launched a single premium (non-ULIP & non-participating) endowment plan, 'Sahara Nivesh Bima'.

The new plan is a one time premium paid plan for all those aged between 09 years to 60 years, with a fixed policy term of 10 years.

Sahara Nivesh endowment plan covers the life of the policy holder and guarantees payment of full sum assured on the maturity of policy or on unfortunate death of the life assured.

The product has also added feature of providing Income Tax benefits under section 80C & 10 (10D) of the Income Tax Act, 1961 on payment of and the premiums paid under the policy. Minimum sum assured offered by Sahara Nivesh is Rs50,000, while maximum sum assured has no limit and is subject to underwriting.

This single premium policy commences the immediate risk cover to the policy holder and also accepts the non-standard age proof with extra premium as per the rules. Surrender of the policy is allowed after six months and if required loan can also be availed.

Sahara Nivesh also provides rebate upto 8% to the policyholder on the premiums. 3% rebate on premium is provided, if the sum assured is Rs1 lakh and above but less than Rs3 lakhs. Rebate of 5% on premium is also offered, if the sum assured is Rs3 lakhs and above but less than Rs5 lakhs. While 8% rebate is given on premium, if the sum assured is Rs5 lakhs and above.

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COMMENTS

Sachin Bhutada

5 years ago

The article does not give idea of the most imp question "Kitna deti hai?" (Returns) :P

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