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Well all of that could remain only a dream, if the government has its way. Long-term retirement schemes that are currently tax exempt may soon become taxable.
A nasty surprise may come in this year's Budget. The government is planning to put tax savings schemes, long-tenure retirement plans and life insurance into different tax baskets.
The long tenure schemes may be brought under the exempt tax proposal, where withdrawals will be taxed. But investments will continue to be exempt under 80 C of the IT Act.
Life insurance policies and public provident fund are likely to fall into this basket. Other savings instruments may be put into another basket, and may not be tax exempt.
These may include National Savings Certificate, the Kisan Vikas Patras, and the Postal Savings Schemes.
The government is likely to keep the new tax regime flexible. So, when you decide to invest in a savings basket you can choose to pay taxes now, or at the time you draw money from a retirement plan.
Amitabh Singh, Partner, Ernst & Young, says that this basket will have some ceiling.
The tax levied on withdrawals will be proportionate to the amount withdrawn.
The government is also considering making the initial withdrawal exempt from tax. But, it is still not clear which basket long-tenure home loans fall into. These are currently exempt from tax.
So if the government goes ahead with this plan then your hard earned savings are likely to become less.
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