Income Tax exemption for New Pension Scheme

The finance ministry is considering to extend tax advantage (EEE status) to the New Pension Scheme (NPS) in this year’s Budget, according to top government officials.

This will bring the government-sponsored pension scheme on a par with other long-term investment plans such as the Public Provident Fund (PPF), Group Provident Fund (GPF), Employee Provident Fund (EPF) and life insurance policies.

While all these plans are exempt from tax at all the three stages of investment — contribution, return and withdrawal — NPS is taxed at the withdrawal stage.

The Pension Fund Regulatory and Development Authority (PFRDA) has been asking for a level playing field for a long time. As per the regulator, the tax disadvantage is one of the biggest impediments in the acceptance of the NPS by the informal sector.

“We have been asking for an equitable tax treatment for the last two years. And this year as well we have made a request to the government to consider this in the upcoming Budget,” said PFRDA chairman D Swarup.

If the proposal becomes law, then in all likelihood pension schemes sold by the life insurance industry will also get the same treatment. At present, an investor gets tax benefit at the investing stage and not at the time of disbursement.

The NPS was launched first in 2004 for the Central and state government employees. This year in May, the regulator opened it for informal sector as well. Currently, there are approximately 6 lakh accounts.

NPS is mandatory for all the Central government employees (except armed forces) joining service after January 1, 2004. But the scheme for the informal sector is voluntary in nature and has attracted a lukewarm response.

In a country of over a billion, where almost 90 per cent people belong to the informal sector, the scheme has attracted only 350 investors in its first month. The regulator believes that EEE treatment will make the scheme more favourable.

source : The Indian Express

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