New Delhi: D. Swarup, chairman of the Pension Fund Regulation Development Authority, (PFRDA) said the new pension system or NPS should enjoy the same tax benefits as the employees provident fund (EPF) and public provident fund (PPF). “NPS is a longer-term product. It should not be discriminated against EPF and PPF. Withdrawals should be made tax-free for NPS too.”
Swarup also said that to include more members under the scheme, the government should contribute towards administration charges like it does for the organized sector in EPF. NPS is one of the lowest cost products available in the market with only 0.009% as its fund management cost.
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NPS is, currently classified as EET (exempt, exempt, taxed). This means the money is tax-free during the savings and accumulation stage, but taxable when withdrawn. Also, no 80C deduction is available for NPS currently as compared with other retirement schemes.
PFRDA announced a new pension system on 1 May that allows anybody, irrespective of his or her employer, to start an NPS account and save for pension. Even Union government employees who joined service after January 2004 can be part of the scheme.
To keep the pattern simple, PFRDA is offering only three fund options under the scheme: E, G and C.
The E fund, as suggested by a committee chaired by HDFC chairman Deepak Parekh, is an index fund that will invest in the stocks of the Nifty-50 index. Index funds are passively managed funds that reflect the portfolio and movement of their benchmark index. The G fund will predominantly invest in government of India bonds and the C fund will invest in corporate bonds and debt securities.
PFRDA has, currently, appointed 22 entities as point of presence for registration, including State Bank of India.