Full tax exemption for NPS: Sinha says assessing revenue loss

The government will have to assess the possible revenue loss before providing greater tax incentives to the National Pension System (NPS), Minister of State for Finance Jayant Sinha has said.
"We've to analyse and try to figure out exactly what revenue impact would be in case the government gives the exempt, exempt, exempt (EEE) benefit to NPS," Sinha told a mutual fund meeting organised by Morningstar.
An EEE tax regime is the best tax saving investment under which exemption is granted on the invested amount, the interest/any income earned from the investment and also an exemption on the total income earned from the investment.

The EEE regime is applicable on investments into PPF and EPF.
As against this, under the exempt, exempt, tax (EET), exemption is granted on the invested amount as well as on returns or income accumulated but is taxed at maturity or withdrawal depending on the tax slab of the individual.
This tax is applicable on investments like Ulip-linked pension plans, pension plans, and the National Pension Schemes.

Stating that data suggest that the NPS is sufficiently attractive long-term, high return investment which are better than other pension funds, he said the present tax regime (EET) does not fact reduce one's returns if looked at a long-term compounded terms, especially if compared to provident funds," the minister said, adding "I think it is very competitive even as it is right now."

The asset under management of NPS has crossed the Rs 1.1-trillion-mark in the first week of October, while the NPS subscriber base also crossed 1 crore-mark in the first week of October.
A majority of NPS corpus is generated from retirement funds of government employees and retail investors are not subscribing because of EET. Other retirement schemes like EPFO and insurance schemes of life insurance industry also have EEE.
PFRDA whole time member for finance, RV Verma told PTI the regulator is confident that in the medium-term, a level playing field will be ensured across all pension products in respect of tax exemption.

The FY16 Budget allowed and additional Rs 50,000 tax exemption to NPS investments over and above the earlier limit of Rs 1.5 lakh.