Tax treatment: Pension regulator seeks parity for NPS with provident funds

The pension regulator has sought tax exemption for National Pension System (NPS) withdrawals, on a par with provident funds and other superannuation funds, said PFRDA’s officiating Chairman, RV Verma.

PFRDA has told the Finance Ministry that NPS withdrawals should be exempted from tax at the time of withdrawal just as PF withdrawals are at the time of retirement.

“We have pitched for an EEE (exempt-exempt-exempt) tax structure for NPS on the lines of provident funds. Currently, we have an EET (exempt-exempt-tax) structure for NPS and this reduces the attractiveness of this product,” Verma told Business Line.

Making NPS attractiveEEE, which offers tax exemption at every stage — initial contribution, accumulation and withdrawal — would enhance the popularity of NPS, he added.

Parity on the tax front with PF coupled with a likely increase in the overall deductible savings limit (currently the composite limit of ₹1 lakh under Section 80C) could increase the popularity of NPS this fiscal year, he said.

Betting on these incentives becoming a reality in the Budget, PFRDA is now targeting a near three-fold increase in the NPS corpus, taking it to about ₹1.5 lakh crore by March 2015.

NPS corpusAs of June 7, the NPS corpus stood at ₹56,000 crore, a 9.8 per cent increase over the level on May 7.

PFRDA also expects the NPS subscriber base to go up to 15 million by March 2015 from the current level of 68 lakh subscribers, he said. Verma expects the ramp-up in both corpus and the subscriber base to come primarily from the “corporate” segment, which currently accounts for just 5 per cent of the corpus.

“We are also promoting NPS in a big way through commercials and other activities,” he said

Nearly 90 per cent of the current NPS corpus comes from the contributions of central and state government employees.

The PFRDA Act was notified in February this year.

The current fiscal will be the first full financial year in which PFRDA will have full statutory backing.

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