Tepid response may continue

Scheme exempted from STT, DDT; but no tax relief disappoints fund managers

The New Pension Scheme (NPS) is unlikely to see a sharp improvement in inflows in the coming months, though the transaction cost for fund managers is expected to come down.

Finance Minister Pranab Mukherjee turned down the plea for exempting the maturity amount from the ambit of income tax at the time of withdrawal and said the exempt-exempt-tax regime would continue. Fund managers and tax planners cite absence of tax exemptions available for competing funds, such as Public Provident Fund (PPF( and Employees Provident Fund (EPF), as a deterrent for investors.

“If the tax treatment is not in sync with other options such as EPF and PPF, NPS will not see a major boost after the Budget,” said UTI Retirement Fund Chief Executive Officer Balram Bhagat.

Mukherjee, however, addressed the other concerns expressed by fund managers, who are expected to render service at a commission of 0.09 basis points, by exempting the NPS Trust from securities transaction tax (STT) on all purchase and sale of equity shares and derivatives.

In addition, it has exempted the trust’s income from income tax and dividend paid to the trust from dividend distribution tax (DDT).

“Expenses towards management would come down as we paid 0.25 per cent of the invested amount as STT. Accordingly, net asset value and returns will go up,” said LIC Pension Fund CEO H Sadak.

As per the New Pension Scheme, investment in equities is allowed in index funds, either in the 30-share BSE Sensex or the 50-share Nifty. The pension subscriber has the option to decide the proportion of investment in these asset classes.

Fund managers expect the corpus of investment to rise with the removal of STT and DDT.

“The proposal to exempt income of the NPS Trust from income tax and any dividend paid to the trust from DDT can give an impetus to NPS. This also provides Indian investors a much-needed tax benefit to plan for their retirement and patronise NPS,” said Bharti Axa Life Insurance CEO Nitin Chopra.