The Hindu : Front Page : Exempt New Pension Scheme also from tax regime, regulator urges Centre

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Sunday, Feb 10, 2008
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Exempt New Pension Scheme also from tax regime, regulator urges Centre

Special Correspondent

Withdrawals under other PF schemes do not attract tax
NPS is no substitute for other retirement benefits

NEW DELHI: The Pension Fund Regulatory and Development Authority (PFRDA) has sought parity in tax treatment for the New Pension Scheme (NPS) for government employees with the Employees Provident Fund, the Public Provident Fund and the General Provident Fund.

“We have taken up this issue with the government,” PFRDA Chairman D. Swarup said on Saturday.

The disparity

Currently, while contributions to and returns and withdrawals under the PPF, the EPF and the GPF are exempt from tax, in the case of the NPS only contributions and returns do not attract tax. In effect, withdrawals under the NPS attract tax under a levy system called ‘exempt, exempt, tax’ (EET), while the other three PF schemes come under the ‘exempt, exempt, exempt’ (EEE) system. “This goes against the basic philosophy of encouraging long-term contractual savings which provide long-term funds for investment,” Mr. Swarup said at a workshop on the NPS here.

The pension fund regulator sought to clarify that the NPS was merely a replacement for the old pension system and no substitute for other retirement benefits such as gratuity and leave encashment. A high-level task force was engaged in framing detailed norms in this regard.

Under the NPS system, Central government employees have to contribute to their pension funds with a matching contribution from the employer. Apart from the Centre, 19 States have adopted the new scheme. The northeastern States will also have to fall in line once the architecture for the NPS is in place. Opposed to the scheme are the Left ruled West Bengal, Tripura and Kerala.

Currently, funds collected under the NPS system are parked in public accounts which yield a return of eight per cent. But had these funds been invested in the markets in the last four years, they would have fetched a return of 14-29 per cent, Mr. Swarup said.

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