New Delhi, Feb 10 (UNI) Pension regulator, Pension Fund Regulatory and Development Authority (PFRDA) said it favours a tax-free new pension scheme for government employees.
PFRDA, which hopes to operationalise the new central record keeping agency (CRA) by June one for implementing new pension scheme (NPS), has recommended that savings under NPS be exempted from tax on maturity as is the case with savings under the employees provident fund(EPF), general proviident fund (GPF) and public provident fund(PPF).
At present, NPS is subject to the EET (exempt-exempt-tax) as against EEE(exempt-exempt-exempt) regime.
Under EEE, savings, earnings on investment as also withdrawal and benefits from EPF, GPF and PPF are exempt from tax. But, under EET, contributions and earning on investment would continue to remain exempt, while withdrawals/benefits would be taxed.
Simply put, under EET some of the instruments could lose their ''tax-free on maturity'' status.
PFRDA chairman D Swarup said they have taken up with the government that savings under NPS be treated at par with those made under EPF, GPF and PPF.
Speaking at the workshop on ''Overview of NPS and CRA Architecture'' here yesterday, he said ''applying the EET regime to NPS savings goes against the basic philosophy of encouraging long-term contractual savings which provide long-term funds for investement.'' The chairman urged Controller General of Accounts and heads of other accounting organisations to transfer NPS subscribers' data to CRA by June one so that contributions on an individual basis could be accepted and accounted for in the new system from that date.
National Securities Depository Ltd (NSDL) Chairman C B Bhave, which is setting up CRA, said the depository would take all the necessary steps to make CRA operational by June one.
At present, NPS offers only two investment choices. First, investment of entire contribution in government securities alone.
Second, up to 15 per cent can be invested in equiites and the balance 85 per cent in fixed income instruments.
Mr Swarup clarified that the new pension scheme replaces pension benefits under the old system and is not intended to be a substitute for other retirement benefits like gratuity or leave encashment.
He said presently entire NPS architecture was being put in place for government employees but it could be scaled up to include other categories of employees as and when made applicable to them.
Pursuent to NPS system, PFRDA is in the process of registering NPS trust, appointing a custodian and a trustee bank, he added.
Advocating pension reforms, Mr Swarup reminded that India is greying very fast as the current population of eight crore above 60 years would double in next 18-20 years; notwithstanding the fact that it is also one of the youngest countries in the world with the average age being only 26 years.
He warned that any delay in implementing pension reforms would hit hard the reforms process and nullify advantages the country have today.
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