The New Pension Scheme (NPS) is set to get a new lease of life

            The New Pension Scheme (NPS), which has failed to take off despite its near-zero expense structure, is set to get a new lease of life. If the revised discussion paper on the Direct Taxes Code (DTC) is passed into law, NPS, which was thrown open to all Indian citizens on May 1, 2009, could turn out to be the best way to build a retirement kitty.

DTC seeks to replace the archaic Income Tax Act of 1961.

         The discussion paper places NPS in the exempt-exempt-exempt (EEE) category, meaning investments in the scheme, returns earned during the tenure and the amount received at maturity will all be tax exempt.

         Currently, investments into NPS come under the exempt-exempt-tax (EET) category, wherein the amount received at maturity is taxable. This has worked against the scheme, considering the other modes of saving tax are in the EEE category.

         This could change and soon. “It is proposed to provide the EEE method of taxation for Government Provident Fund, Public Provident Fund (PPF) and Recognised Provident Funds and the NPS administered by Pension Fund Regulatory and Development Authority. Approved pure life insurance products and annuity schemes will also be subject to EEE method of tax treatment,” the discussion paper stated.

          “As per the revised discussion paper New Pension Scheme, Public Provident Fund or Superannuation Fund will not be taxed during contribution, accretion and withdrawal,” said Parizad Sirwalla, partner - tax, B S R and Co. “Under NPS there was some ambiguity which has now been clarified,” she added.

           NPS is a tool where someone between 18 and 55 years can invest a minimum of Rs 500 four times a year or Rs 6,000 annually. The permanent retirement account number needed for NPS investment can be opened at various centres including select bank branches and even India Post offices.

           Also, NPS uses the equity route partially to build a retirement kitty, which the Employees Provident Fund (EPF) and PPF do not. Other products that help one build savings using the equity route, such as tax-saving mutual funds and unit-linked insurance plans, have now been put under EET and hence the tax works out to be in favour of NPS.

            The cherry on the pie is the additional benefit NPS subscribers get if they invest in this financial year, as announced in the Budget in February 2010. “To encourage the people from the unorganised sector (non-government employees) to voluntarily save for their retirement and to lower the cost of operations of the NPS for such subscribers, government will contribute Rs 1,000 per year to each NPS account opened in the year 2010-11,” finance minister Pranab Mukherjee had said in his Budget speech.


           This initiative is called “Swavalamban” and all those who start investing in NPS this year and park Rs 1,000-12,000 per annum between April 1, 2010 and March 31, 2011, will get the additional fund allocation from Rs 100 crore set aside for this scheme. Even though NPS is expected to move onto the EEE regime only in April, 2011, it might be good to start to investing in it to get the Rs 1,000 per year the government plans to invest in every NPS account for three years.
source:dnaindia
There was an error in this gadget

Popular Posts