New Delhi: The finance ministry is likely to provide a booster to the New Pension System (NPS) in the forthcoming Budget by exempting initial contribution to it from income tax, a move that would encourage people to opt for the scheme.
Faced with the lukewarm response to the new scheme from subscribers, interim regulator Pension Fund Regulatory and Development Authority (PFRDA) has urged the finance ministry to provide tax exemption on contribution at entry level.
“At the entry stage, we expect tax exemption in the coming budget,” a PFRDA official said.
The NPS, which has recently been extended to all citizens, has evoked lukewarm response from subscribers with only about 500 people joining the scheme to date.
The government, said Satya Poddar, senior partner, Ernst and Young, “should encourage the NPS as it can provide a pool of long-term funds for developing infrastructure”.
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The NPS, he added, should be based on the exempt tax structure, which means that the contribution and accrual of interest be tax-exempt. The tax should be imposed at the time of withdrawing funds.
Many countries like Singapore have successfully experimented with the pension scheme to raise long-term resources to develop infrastructure.
Besides, the government may also come out with some budgetary allocations to bear the cost of maintenance of accounts of policy holders under the New Pension System.
“The authority has written to the government to give exemption with reference to the account maintenance cost,” a PFRDA official told the agency.
The government should bear the account maintenance cost as it is doing it for central government employees, the official added.
Under the present structure, a subscriber has to pay at least Rs470 as initial charges in the first year and Rs350 annually to the National Securities Depository Ltd (NSDL), which is the record keeping agency.
Moreover, the government is also likely to allocate funds in the Budget to the NPS for advertising and marketing campaigns that it may undertake.