New Delhi: The Government has decided to exempt from tax the new employees' pension contribution and accumulation, but tax them at prevailing rate at the time of withdrawal of funds upon retirement.

"The revenue department is working on the details and a separate Income Tax directive would be issued shortly," joint secretary (capital markets) U K Sinha told a public accounts officers conference in New Delhi today (Jan 19, 2004).

He said the Government had decided to follow the "EET" method - exempting the pension wealth at the contribution and accumulation stages and taxing it at the withdrawal stage.

The tax rate on pension income would be the prevailing rate when the withdrawal is made after retirement.

Since the new scheme, which became effective from January was a "defined contribution scheme", it would exclude the family pension system in the event of the death of the employee as prevalent now.