The government has rolled back its Budget proposal to tax 60 per cent of the Employee Provident Fund (EPF) corpus on withdrawal, aimed to bring it at par with the National Pension System (NPS). Hemant Contractor, chairman of the Pension Funds Regulatory Development Authority, tells Dilasha Seth why his basic problem hasn't gone:
The Budget proposal on EPF, aimed to bring it at par with NPS, has been rolled back. Do you think it makes EPF more attractive?
NPS is now more attractive than in the earlier situation when the entire corpus was taxed on withdrawal. Now, 40 per cent is exempt from tax. Of the rest, at least 40 per cent has to be mandatorily deposited in an annuity scheme. So, we are talking about (only) 20 per cent here which will be taxable. A vast improvement from before. If you put the entire 60 per cent in an annuity, you could avoid paying any tax. Besides, NPS offers better returns.
Are you going to make a pitch to the government to completely exempt NPS withdrawal from tax?
That has been one of our demands for a long while. We have been pitching for parity between different pension products. The tax on withdrawal indeed puts us at a disadvantage. The developments after the Budget have not fully met our requirement. Although, 40 per cent of the corpus exempt from tax now is a positive.
Have you made a fresh request to the finance ministry?
No, the EPF rollback is a very recent development. We do plan to take it up, to bring parity between NPS and other pension schemes. It has been our demand for long and we will keep raising it.
In the previous Budget, the finance minister had announced a choice for EPF subscribers to shift to NPS, which will require an amendment in the EPF Act. What is the update on that?
The modalities are still being worked out but it will be useful only if all NPS withdrawals are also made tax-exempt. Else, why will people shift from EPF to NPS? What will be the incentive for them?