in august 2009 the finance minister released for public comments a draft of the new direct taxes code dtc which is slated to replace the present direct tax laws in response various industry associations trade bodies and consulting firms made representations regarding the concern areas ambiguities etc a revised draft addressing certain identified core areas of concern is likely to be released soon for further public consultation one of the dtc proposals that has been most debated is exemptexempttax eet regime for taxation of insurance products and other savings instruments the eet method allows exemption at the first two stages but provides for a tax on withdrawals at the personal marginal rate the concept of eet is primarily prominent in developed countries which have comprehensive social security schemes but in india in the absence such schemes eet if implemented would come as a big blow to the individual tax payer many representations were received regarding these provisions this article discusses the key provisions proposed in the current draft of the dtc regarding the taxation of insurance products and mutual fund products insurance impact on holderscontribution stagecurrently a deduction from the total income up to a maximum of rs 100000 is available in the hands of individuals in respect of premium paid for self spouse and children under dtc this limit is sought to be raised to rs 300000 in respect of premium for self and the premium paid for spouse and children may not be deductible in the hands of the payer accrual stageas envisaged in the draft dtc the policyholders would be exempt from tax at the accrualaccumulation stage as per the provisions of the current income tax law further under dtc life insurance companies are sought to be treated as passthru entities accordingly the surplus in policyholders account of the insurance companies is sought to be exempt from tax under the current law the same is taxable at 125 plus surcharge and education cess as part of actuarial surplus in the hands of the life insurance companies while the dtc seeks to exempt the policyholders surplus the minimum alternate tax mat of 2 on gross assets proposed in the dtc could erode the policyholders surplus unless policyholders surplus is exempted specifically from the mat provisions withdrawal maturity stagecurrently any sum including bonus received under a life insurance policy except policies where the premium paid for any of the years exceeds 20 of the capital sum assured is exempt from tax in case where the premium paid in any of the years exceeds 20 of the capital sum assured an exemption is available only if the sum is received on the death of the insured under the dtc the entire proceeds from a life insurance policy are proposed to be made taxable the proceeds are not taxable only if it is in respect of a policy wherein the premium paid in any of the years does not exceed 5 of the actual capital sum assured and where the