Finance, Labour Ministries Lock Horns over NPS and EPF


whether or not a part of an estimated Rs 5 lakh crore of provident fund should be invested in stock markets has become a bone of contention between the ministries of Labour and Finance.

While the Finance Ministry wants Labour Ministry to work on investing about 15 per cent of the Employees' Provident Fund Organisation (EPFO) money in stock markets for better returns without taking the issue to the PF trustees, the latter has decided to do otherwise.

Whereas the EPFO commands a corpus of Rs 3 lakh crore, other provident funds, which follow the Fund's investment pattern, have another Rs 2 lakh crore.

In a letter to Labour Secretary P C Chaturvedi, Finance Secretary Ashok Chawla referred to the changes by EPF schemes earlier without any discussion in the Central Board of Trustees (CBT) and said, "it (Labour Ministry) can take a similar view on the issue of investment pattern."

However, the Labour Ministry has forwarded the letter to EPFO to take a view on the matter.

CBT is an apex decision making body for EPFO and is likely to meet on September 10 to take up the issue.

The Finance Ministry wants the Labour Ministry to follow investment pattern notified by it, which provides for up to 15 per cent of the corpus in stock markets.

However, CBT's advisory body Finance and Investment Committee (FIC) on Wednesday stuck to its stand against investment of EPFO money into stock markets--either in shares or indices.

In his letter, Chawla sought to remind the Labour Ministry that it used to adopt the investment pattern notified by the Ministry of Finance for many years.

"However, the Ministry of Labour has not adopted the investment pattern notified by the Ministry of Finance in January, 2005 and November, 2008 and investment pattern of the Labour Ministry continues to be the same which was earlier notified in July, 2003," the letter said.

Favouring the stand of no investment in stock markets, EPFO said at the FIC meeting yesterday that while investment in stock markets is subject to market volatility, "there is no risk of capital erosion in the case of EPF investments."

It also countered Finance Ministry's claim that the New Pension System (NPS), which has an option to invest in stock markets, is giving better returns than EPF.

The Finance Secretary said in his letter that while NPS for central government employees could generate a weighted average investment return of 14.82 per cent for the central government employees in 2008-09, EPF is giving only 8.5 per cent returns to its subscribers for many years.

The EPFO has been giving 8.5 per cent returns to its subscribers since 2005-06.

Countering Chawla's views, EPFO said the income earned on EPF investments are actually realised, while the returns declared in NPS are notional and subject to market conditions.

This is so because, said EPFO, the returns generated under NPS are based on net asset value while the returns declared by EPFO are based on actual coupon received on its investments

The Union Cabinet approved Direct Tax Code; basic exemption limit proposed at Rs 2 lakh

The Union Cabinet on Thursday approved a new set of direct tax rules that proposes to raise income tax exemption limit from 1.6 lakh to 2 lakh, leaving more money in the hands of individuals, and a lower tax rate for companies. 

The much-awaited Direct Taxes Code, or DTC, Bill, which seeks to replace the nearly 50-year-old income tax law, is likely to be introduced in Parliament on Monday and may then be referred to a select committee of members of both houses of Parliament. 

The basic exemption limit is proposed to be raised to 2 lakh from the current 1.6 lakh and corporate tax rate for both domestic and foreign companies proposed is at 30%, finance minister Pranab Mukherjee said after the meeting of the Union Cabinet. 

Senior citizens and women will enjoy a higher exemption of up to 2.5 lakh. There will be no surcharge or cess on companies, thereby bringing the corporate tax rate to 30% from present 34%. 

The new code proposes three income tax slabs—income of up to 2-5 lakh will face 10%, 5-10 lakh will attract 20% and income over 10 lakh will face tax at the rate of 30%. The housing loan exemption of 1.5 lakh would also be available to individual taxpayers on the interest component. 

“The whole objective is that a plethora of exemptions will be limited. Income tax slabs will be three. Rate of taxes will be taken in the schedule so that they need not be changed every year,” Mr Mukherjee said. 

“Once the tax rates are part of the code itself, it would provide guidance and stability as to short to mid-term tax rates vis-a-vis current situation wherein tax rates could undergo a change on a year-on-year basis,” said Vikas Vasal, executive director, KPMG. 

The new changes in the tax rates, expected to come into effect from April 1, 2011, could lead to some loss in revenue and raise the government’s deficit. 

However, the government proposes to raise the minimum alternate tax (MAT) on book profits to 20% from current 18%. The move will be a big blow for Reliance and a host of IT and infrastructure companies that pay MAT. 

Ficci general secretary Amit Mitra welcomed the proposal. “We are assuming that this rate of tax is a proposed cap and corporate tax would not exceed 30%. Any cess or surcharge should be subsumed within this 30%,” he said. He further added that at this rate, the Indian corporate tax is moving closer to the rate prevailing in Asean countries, which is again a positive direction for direct taxes. 

However, some industry honchos were not happy as they expected much lower rates if exemptions are being withdrawn. Jindal Stainless vice-chairman & MD Ratan Jindal said the proposed rate of 30% is good, but the industry was looking for lower rates of around 25%. 

“Hopefully the government will consider bringing down corporate tax at about 20-25 % in the coming years. If more money is put in the hands of the industry, it can be ploughed back for further investment and expansion purposes.”

Revision in Time Scale Promotion and Restructuring of posts in Select Ranks in Military Nursing Service (MNS) approved




             The Union Cabinet  approved the proposal of cadre restructuring of Military Nursing Services (MNS).  The proposal approved by the Cabinet includes:-


  •    Upgradation of 74 posts of Lt Col (Time Scale) to the rank of Lt. Col (Select) and above. Now, there will be 2 Major Generals, 18 Brigadiers, 58 Colonels and 157 Colonels (Select) in MNS.


  •   Revision of service criteria in the Time Scale promotion in the non Select Rank up to the rank of Lieutenant Colonel (Time Scale) will be  as follows :  Captain- 3 years (from existing 5 years); Major – 8 years (from existing 12 years) and Lt.Col.(TS) – 16 years (from existing 20 years).

  •   Qualifying service for Lieutenant Colonel (Select) rank by Selection Board revised from the existing 18 years to 14 years.


             The decision will reduce stagnation in the various ranks of Military Nursing Service by increasing the number of select appointments. It will also help in retaining competent and qualified nursing officers in service by providing adequate opportunities for career progression.

 Background:

          The last cadre review of Military Nursing Service was carried out in the year 1986. The authorized strength of MNS cadre is 3860 and there are only 161 select rank posts in the MNS cadre. There is a steep pyramidal structure at higher select ranks. An MNS officer is able to pick up the select appointment in the rank of Lieutenant Colonel approximately after 26-28 years of service, when she is around 46-48 years of age. On account of limited number of vacancies, arising out of superannuation, there is large scale supersession of many deserving nursing officers (both specialised and non-specialised) in the Promotion Boards for promotion to higher ranks. Apart from causing de-motivation among these nursing officers, non-selection for promotion also leads to seeking premature retirement by such experienced nursing officers. To retain such qualified and trained nursing offices, it has been considered necessary to improve promotional avenues at all levels so as to mitigate the hardship of nursing officers by increasing the number of posts in select grade appointments within the overall strength of cadre.


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