PFRDA for tax exemption on pension withdrawals

Interim pension regulator PFRDA will take up with the new Government the matter of tax exemption on withdrawal of money under the New Pension System.

"We will take up (the issue of tax exemption for NPS) with the government when the new government is formed," Pension Fund Regulatory and Development Authority (PFRDA) Chairman D Swarup told PTI here.

Swarup had sought income tax exemption for NPS earlier also, but it was not granted by the Government.

While contribution, returns and withdrawals under Public Provident Fund (PPF), Employee Provident Fund (EPF) and General Provident Fund (GPF) are tax exempted, in case of the New Pension System (NPS), only contributions and returns do not attract tax.

However, withdrawals under NPS attract tax. This is called exempt, exempt and tax (EET) system, unlike exempt, exempt and exempt (EEE) system for PPF, EPF and GPF.

The NPS is applicable on Central Government employees since January one, 2004. Under it, employees have to contribute to their pension funds with matching contribution from the employer (in this case, the Government).

Besides the Centre, as many as 21 states have adopted the NPS. The PFRDA is also all set to introduce the NPS for all citizens from May one.

For the purpose of introducing the NPS for all citizens, the PFRDA will come out with investment norms by the middle of this month. However, the NPS for all citizens will not have any mandatory obligation for employers to give matching contributions for the pension fund.

The Deepak Parekh Committee, constituted by the PFRDA, has recommended investment norms for the NPS.

The committee had suggested options to subscribers to invest in shares of the 50 stocks of the index Nifty of the National Stock Exchange, government bonds, liquid assets of mutual funds, state government bonds, rated bonds of public financial institutions and public-sector companies, among other things.

The PFRDA had invited public comments on the recommendations, as well as certain modifications proposed by it to these suggestions.

In August 2008, the government advised the PFRDA to extend the NPS, currently subscribed by employees of the Union Government and most state governments, to all citizens.

Earlier, the interim pension regulator had a plan to launch the new pension system for all citizens from April one, but it was deferred by the Government, citing the model code of conduct.

The PFRDA had approached the Election Commission seeking permission for launching the scheme and decided to introduce it from May one, after getting nod from the EC.

The PFRDA has already appointed six fund managers -- SBI, UTI Asset Management, ICICI Prudential Life Insurance, Reliance MF, IDFC Mutual Fund and Kotak Mahindra -- for the new scheme.