Will ask govt to make employers' contribution tax-free in Budget: PFRDA

Pension fund regulator PFRDA will propose to the government to make employers' contribution of 14% under NPS tax free for all categories of subscribers in the next Budget

Pension fund regulator PFRDA will propose to the government to make employers' contribution of 14 per cent under NPS tax free for all categories of subscribers in the next Budget, Chairman Supratim Bandyopadhyay said.

Employers' contribution of 14 per cent in pension under the National Pension System (NPS) scheme for the central government employees was made tax free from April 1, 2019.

"We may propose things like 14 per cent contribution by employers to be made tax free to all. Currently, it is given only to the central government employers.

"So we are requesting the government to give it to all the employers, whether it is state governments or other corporate entities, so that subscribers across the board can get this benefit," Bandyopadhyay told PTI.

The PFRDA Chairman said states are asking that the 14 per cent tax benefit be given to state government employees also. He said some state governments have written to the Authority requesting the same.

Besides, the Pension Fund Regulatory and Development Authority (PFRDA) will ask the government to extend the benefit of tier-II NPS account as tax free for all subscribers.

Recently, the facility was granted to the central government employees.

"There is this tier-II NPS account which was made tax free exclusively for the central government employees recently. So there also, we would request the government to give the facility to all the subscribers. In the tax-free tier II account we are keeping a lock-in period of 3 years because you are getting the tax-free status...And we want it to be extended to all the other employees," he added.

A tier-II account under NPS is not a compulsory account, one can have it along with the tier-I account, he said, adding the benefit with tier II account is that it can be withdrawn immediately.

Last month, the Finance Ministry had kicked off the exercise to prepare the Budget for 2021-22 amid the urgency to revive the economy hit by the COVID-19 pandemic.

The upcoming Budget will be crucial for the country as it will have to deal with impact of pandemic which has affected all segments of the economy, including revenue collection, disinvestment, expenditure, exports and food prices.

Budget 2021-22 is likely to be presented on February 1.

NPS, administered by PFRDA, is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions about future needs.

There are two types of NPS accounts -- tier-I and tier-II.

While tier-I is a non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber, tier-II account is a voluntary withdrawable account which is allowed only when there is an active tier-I account.

The withdrawals are permitted from tier-II account as per the needs of the subscriber as and when claimed.

PFRDA administers two pension scheme-- NPS and Atal Pension Yojana (APY). NPS is mainly targeted at the employees in the organised sector while APY is meant mainly for those working in the unorganised sector.