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New Pension Scheme Picking up momentum

In a press release issued recently, the government said that more than five lakh people have subscribed to its New Pension Scheme (NPS) till end of June-2009.

The New Pension Scheme (NPS), launched by the government, was extended to all citizens of the country from May 1, 2009. Under the scheme, 50 per cent of the funds is allowed for investment in the stock markets.

It was expected that NPS would gain much popularity as it is the first Govt sponsored Pension scheme offered to public.  But initially it received only lukewarm response to the extent that less than thousand applications were received in the month of May-2009 throughout India.  Analysts said that since Govt did not provide any Income tax exemption on the investments made in this scheme while other Govt sponsored savings schemes such as Public Provident Fund etc., have an edge over NPS as people who invest in these schemes enjoy tax exemption under IT Act.

However, after announcement of Govt in the Budget 2009 about extending tax exemptions to NPS also, the total number of subscribers in the New Pension System as on June 30, 2009 rose up to 5.55 lakhs.

The tax related issues pertaining to NPS contributions which were resolved through Finance Bill, 2009, has really given this scheme a consideration.

Earlier, the benefit IT exemption given under Section 80 CCD of the Income-Tax Act, 1961 (as an investments in pension scheme) was restricted to the employees of the Central Government and other employees (i.e. the salaried class) and IT exemption benefit was not available to other individuals (like self-employed).

The Finance Bill, 2009 has proposed to extend the benefit of Section 80 CCD of the Income-Tax Act, 1961 to all individuals.

The accumulated pension wealth was subject to tax at the time of withdrawal and the bill proposes to exempt from tax all withdrawals if such amount is used for purchasing an annuity plan in the year of exit.

Source : The Economic Times (28-07-09)

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