The government may make the National Pension System (NPS) more attractive by extending tax concessions on contributions and withdrawals especially for senior citizens above 75 years.
Pension fund regulator PFRDA has sought “parity” with Employees’ Provident Fund Office (EPFO) on the taxation front for contributions by employers and some announcements in this regard are expected to be made in the interim Budget.
Finance Minister Nirmala Sitharaman is expected to present the interim Budget on February 1. This is going to be her sixth Budget.
At present, there is a disparity in the employers’ contributions in building corpus for the employees, wherein contributions up to 10 per cent of basic salary and dearness allowances by a corporate are exempt from tax for NPS contributions, while the same is 12 per cent in the case of EPFO.
To promote long-term savings through NPS and reduce the tax burdens for senior citizens above 75 years, the annuity portion of the NPS should be made tax free for the holders from the age of 75 years, according to Deloitte Budget expectations.
Moreover, NPS can be included along with interest and pension to ensure that senior citizens above 75 years of age do not have to file returns if they have NPS proceeds, it said.
At present the lump-sum withdrawal of 60 per cent is tax free.
There is also clamour for providing tax breaks for NPS contributions under the new tax regime.
As of now, an individual’s contribution of up to Rs 50,000 to the NPS under Section 80CCD (1B) as deduction under the old tax regime but not under the new tax regime.
This is over and above Rs 1.5 lakh tax relief provided under Section 80C in the old tax regime.
With regard to government employees, the government last year set up a committee under Finance Secretary T V Somanathan to review the pension system and suggest measures for its betterment.
The report of the panel is still awaited.
The committee would suggest whether in the light of the existing framework and structure of the National Pension System (NPS), as applicable to government employees, any changes therein are warranted.
As per its terms of reference, the committee would suggest measures to modify the same with a view to improving upon the pensionary benefits of government employees covered under the NPS, keeping in view the fiscal implications and impact on overall budgetary space, so that fiscal prudence is maintained to protect the common citizens.