Budget 2016 – Centre Plans to Remove NPS Withdrawal Tax to Boost Savings
Budget 2016 – Centre Plans to Remove NPS Withdrawal Tax – At present, only subscribers’ contribution and accumulation to the NPS are exempt from tax, while any withdrawal from the scheme is taxable.
The government is expected to remove tax that is currently levied on withdrawals from the National Pension System, finance ministry sources said. This exemption may come through in the Union Budget 2016-17 as the government looks to boost savings.
Finance minister Arun Jaitley is scheduled to present the Budget on February 29. Sector regulator Pension Fund Regulatory and Development Authority (PFRDA), in its pre-Budget inputs to the finance ministry, has suggested the need to exempt withdrawals from the NPS from taxation. At a meeting of the Financial Stability and Development Council chaired by Jaitley earlier this month, the PFRDA pitched for exemption from tax at time of final withdrawal under NPS, bringing it on par with tax treatment of Public Provident Fund and Employees’ Provident Fund.
NPS has asset under management of Rs 1.08 lakh crore and 94.68 lakh subscribers as on December 31, 2015, according to data from the National Pension System Trust.
State government employees accounted for Rs 51,913 crore of AUM under the NPS, while Central government employees’ AUM in the pension plan stood at Rs 44,752 crore, the data shows. Corporate sector contributed Rs 8,089 crore to the AUM under NPS.
At present, only subscribers’ contribution and accumulation to the NPS are exempt from tax, while any withdrawal from the scheme is taxable. Removing tax on NPS withdrawal is aimed at raising country’s savings as well as bringing tax treatment of this pension scheme in line with other options like PPF. In its report in last November, the 7th Pay Commission also pitched for tax exemption on withdrawals under NPS to make it on par with other pension schemes.
In a pre-Budget meeting with Jaitley last Tuesday, banks sought significant tax breaks from the government to promote savings, such as reducing maturity period for tax-free term deposit to 1 year, and increasing exemption limit on savings to Rs 2.5 lakh per annum from Rs 1.5 lakh per year.
The Budget for 2015-16 allowed additional tax deduction — over and above the limit of Rs. 1.50 lakh — on contribution of up to Rs 50,000 towards NPS.
The NPS has been implemented for all government employees, except armed forces, joining Central government on or after January 1, 2004. Most states and Union Territories have also introduced the NPS for their new employees. The NPS was opened to Indian citizens from May 1, 2009 on a voluntary basis. To make the NPS attractive, the PFRDA has introduced a number of changes such electronic opening of pension account, partial withdrawal up to 25 per cent of subscriber’s own contribution for specific purposes like children’s higher education, marriage, construction of house and specified illness.
Source: Indian Express