To make the New Pension System (NPS) successful, the government should give it equitable tax treatment compared with other savings instruments, said Pension Fund Regulatory and Development Authority (PFRDA) chairman D Swarup. Addressing the Eighth Annual Pension Policy Conference in New Delhi, he cited the instance of the Public Provident Fund (PPF), which is exempt from tax at all three stages of investment, accumulation and withdrawal. “The NPS, which has a 30-35 year tenure, however, gets an EET (exempt-exempt-tax) treatment. The government should encourage long-term saving. PPF is only a medium-term saving product. Moreover, NPS is a mandatory scheme while PPF is a voluntary scheme,” Swarup said.Central government employees who were appointed before January 1, 2004, participate in the General Provident Fund (GPF). This scheme too gets the EEE (exempt-exempt-exempt) treatment. Contributions made to GPF after January 1, 2004 continue to get EEE treatment. The tax treatment, said Swarup, needs to be reviewed to ensure that it does not create disincentives for NPS subscribers. An EET tax treatment means that the savings will be taxed at the time of exit or withdrawal. In case of an EEE treatment, there is no tax at any stage. At present, both the employee’s contribution (10 per cent) and the government’s contribution (also 10 per cent) to an employee’s pension are included within the Rs 1 lakh tax deduction ceiling under Section 80C. “Since Section 80C is meant to encourage personal saving, there should be a separate ceiling over and above the Rs 1 lakh for the government’s contribution,” said Swarup.So far, Rs 1,177 crore has been transferred by the Central government departments into the NPS. While 19 states have already notified the NPS, seven more are expected to do so in the next six months. Only the Left-led states — West Bengal, Tripura and Kerala — have refused to join the new system. Once its rollout is complete, about 3.5 lakh central government and 5 lakh state government employees will participate in the NPS.
