ooohhh now i get it.....hud hu gai,, itni see baat na jana.....its a good enough lacuna in the tax alw

credit is given at tax's effective slab rate.

while tax penalty is to be made on effective tax fater rebates have watered i down..isnt it.

have to cross check tommorow with some more number crunching or refreing to law to see any word twisters.

one more question sir...is it all hypothetical or have you really have made a withrdral from PF account till now...??

and confirmation can only be in case of a full dress rehearsal....

persoanlly, i am planning to go ahead with opening a PF account in october..

any recomendation out of these 5 which one is the best and why...oterhwsie i was longing for arif habib...but nothng final as yet

No it will not be like that.

When you will went to withdraw it, your effective tax rate will be calculated using following formula:

Effective tax rate at withdrawal time: (Tax payable-tax credits)/Annual taxable income

Because of tax credit, your effective rate would have come down to 8% from 17%.

This is what i do:

I invest 500,000 on 1st Jan, get my my tax credit at 16%. After exactly 1 year i go and withdraw it and get deducted at last 3 yrs avg tax rate.

I have killed my current yr tax rate to 8-9% due to tax credit and my previous 2 years taxes were less as compared to current year because of lesser income in previous years and also i would have killed them too through tax credits, therefore my 3 yr avg tax rate at withdrawal time will be around 7-8%.

hmm...ncie to talk to you sir, otherwise what homework i had done on PF showed not a good enough scenario...let me eloborate, then you can check it for errors

suppose i have effective rate of same 16 %....i invest 1 lakh p.a in PF in equity with return of 20 %...

total return 20 %+16% tax arbitrage= 36 % return.

run same loop for nxt 3 yrs with effective rate increasing due to incremnts 16%+17%+18% ..so avg rate wud be 17 %

suppose i wthdraw my investment at 3rd year..with an avg rate of 17 % i wud be taxed on whole amount ( thast what the gusy have told me )

so effectively it wud wipe out all the tax arbirtage i had gained in previous years+ some more hit due to higer rate plus hit on gains aswell...so my total gain wud be even lessser than if i had invested it only as equity fund without claiming any tax credits on it...