Pension regulator pins hopes on ‘EEE’ status for NPS

Pension regulator PFRDA expects the Budget to turn the National Pension System (NPS) into a exempt-exempt-exempt product (EEE product) for tax purposes.

Such a move would further boost the popularity of NPS and bring it on par with other retirement-focused products like the Provident Fund, Supratim Bandyopadhyay, Whole-time Member (Finance), PFRDA, told BusinessLine. The PFRDA has urged Finance Minister Nirmala Sitharaman to entirely tax exempt the lumpsum amount allowed to be withdrawn from NPS on retirement, he said.

Under the present rules, at the time of retirement, 40 per cent of the accumulated corpus under NPS has to be used to buy an annuity. The remaining 60 per cent can be withdrawn as a lumpsum. However, of this 60 per cent, only two-third (40 per cent) is exempt from tax while the remaining one-third (20 per cent) is taxed.

“Our hope is that even this one-third should become tax exempt so that the entire lumpsum withdrawn will be tax exempt and NPS can become an EEE product,” Bandyopadhyay said.

Under the EEE status, the contribution, accumulation and the withdrawal are all tax-exempt. Currently, NPS is a EET product as part of the lumpsum withdrawn on retirement is subjected to tax.

The PFRDA has also suggested that the Government should allow all employers — State Governments, private employers and other bodies — to contribute 14 per cent towards NPS of employees. It may be recalled that the Centre had in December last year increased its share of NPS contribution to 14 per cent for all Central Government employees. Only Uttar Pradesh Government had followed suit and effected a similar dispensation for its employees.

The PFRDA also wants the Centre to give tax breaks on the higher 14 per cent contribution so that it is a win-win for both employers and employees, according to Bandyopadhyay. The higher 14 per cent contribution should be allowed as business expenditure at the hands of employer and the employees too should not be taxed for the additional 4 per cent they get from the employers, he said. This will give a big boost to the pension market in the country, he added.

Atal Pension Yojana

Bandyopadhyay also said the PFRDA is hopeful that the Budget would raise the monthly pension under APY to ₹10,000 from the current slab of up to ₹5,000. At present, there are five slabs of pension, from ₹1,000 to 5,000 per month.

There has been a lot of feedback from the market for higher pension amounts as many feel that ₹5,000 at the age of 60, 20 to 30 years from now, will not be sufficient.

PFRDA also wants the maximum age bar to enter the scheme to be raised to 50 years from 40 years.

At present the age to enter APY is between 18 and 40, but an increase in the same by another 10 years — 18 to 50 years — will help expand the subscriber base, according to PFRDA.