Regulator pitches for tax relief on New Pension Scheme to make it attractiv

   The interim pension regulator has sought tax relief on investments in  the New Pension Scheme (NPS) to make it more attractive to  employees of private sector firms.

    The interim pension regulator has sought tax relief on  investments in the New Pension Scheme (NPS) to make it more  attractive to employees of private sector firms.

    The Pension Fund Regulatory and Development Authority (PFRDA)  has written to the finance ministry seeking level playing field  for NPS with other long-term savings schemes that will get tax  benefits under the proposed Direct Taxes Code. “All we want is  equal treatment,” a PFRDA official said.

    NPS is currently under the Exempt-Exempt-Tax system, which means  investment will be taxed when it is withdrawn. Provident fund  and many of the small savings schemes are under the  Exempt-Exempt-Exempt (EEE) regime, and are not taxed at any  point.

    “If the finance ministry plans to continue with the EEE regime  for long-term saving schemes, we want the NPS also to get the  same treatment,” the official said, requesting anonymity.  “Several multinational companies are talking to us. We need more clarity on the tax treatment,” he said.

    The pension regulator has, in its letter to the central board of  direct taxes (CBDT), said tax benefits will make the scheme more  attractive and will help increase its share.

    While a few public sector units such as Nalco and Damodar Valley  Corporation have already transferred a portion of their  superannuation funds to the NPS, many private sector companies  and public sector banks are also exploring the option as it  would rid them of the headache of administering and managing the
funds.

    “This would be a good step. It would allow private companies to  move their superannuation funds to the NPS,” said Amit Gopal,  vice-president of pension consultant India Life Capital.

    The PFRDA has further requested for an additional window under  Section 80C of the Income Tax Act for contributions by  subscribers’ employers.

    Investments in specified schemes up to Rs 1 lakh are exempt  under Section 80 C of the Income Tax Act. The budget for this  year has given an additional exemption of Rs 20,000 for  investments in infrastructure schemes.

    Under Indian laws, companies with over 100 employees have to  contribute 12% of an employee’s salary to the provident fund  with an equal contribution from the employer.

    The NPS, a defined contribution superannuation scheme for  government employees, was thrown open to the private sector in  May last year. The scheme offers subscribers the flexibility to decide their investment portfolio as well as choose between fund  managers.

    With weighted returns of over 12% annually, NPS is expected to  be the ideal long-term saving instrument for workers in the  unorganised sector. Its low fund management fees of 0.009% make  it attractive.

    The scheme, however, has managed only 6,500 private subscribers,  partly because it does not enjoy some tax benefits given to private provident fund and private super annuation funds.



Source: THE ECONOMIC TIMES