Annuity should be tax-free for seniors: PFRDA chief2 min read . Updated: 14 Jan 2021, 06:14 AM IST
- PFRDA chairman urges govt to make pension plans tax-efficient
- Normally, the annuity or pension received from NPS or any other pension scheme is fully taxable
The Pension Fund Regulatory and Development Authority (PFRDA) has proposed to the government to make annuity or pension plans fully or partially tax-free for senior citizens in the upcoming budget.
Although the commuted pension (lump sum) received from the National Pension System (NPS) by senior citizens is tax-exempt, they still need to pay tax on annuity or pension received on a monthly or yearly basis, said PFRDA chairman Supratim Bandyopadhyay, in an interview with Mint.
Normally, the annuity or pension received from NPS (the uncommuted portion) or any other pension scheme is fully taxable.
“After retirement, annuity becomes one of the important sources of income for senior citizens and it becomes difficult for them to create additional wealth as annuities get taxed as per the tax slab they fall in," said the chairman. Creating additional wealth after retirement is a big challenge for senior citizens, who still need regular income to meet their household expenses. They have several investments options to choose from, but not all of them provide regular interest payments on the deposits. The interest income from the ones that provide it regularly is, typically, taxable in their hands.
“We have also proposed a 14% contribution by employers to be made tax-free for all NPS subscribers. So, we are requesting the government to give it to all the employers, on a par, whether it is state government or other organizations, so that subscribers across the board can get this benefit equally," he said.
When the employer contributes towards the employee’s NPS Tier-I account, it is eligible for tax deduction under Section 80CCD (2) of the Income-tax Act. For central government employees, the employer contribution is 14% of the salary (basic plus dearness allowance) and 10% for others. This means that the contribution made by the employer is allowed as a deduction under Section 80CCD(2) while computing the total income of the employee.
However, the amount of deduction can’t exceed 14% of the salary in case of central government employees and 10% in case of private or state government employees. This creates a disparity between central government and state government and private sector employees, which the PFRDA proposals seek to fix.
Keeping in view the wider interest of the subscribers, steps are also being taken to widen the NPS base.
“When a person retires, he/she has too many responsibilities. For example, he may need money to buy a home, for child’s wedding or higher education. Then the retirement funds he/she gets may not suffice the need as the person will also have to plan for getting regular income. We want people to plan for regular income via NPS from today so that they can get regular pension and fulfil other goals after retirement easily," said the PFRDA chairman.
Despite huge market volatility, the assets under management (AUM) for NPS saw decent growth by the end of December 2020. In March 2020, the AUM was ₹4,17,479 crore, which swelled to ₹5,48,913 crore at the end of December 2020.
“At the end of the calendar year 2020, we saw decent and steady growth in NPS in terms of numbers. On average, we have seen 11-12% growth in overall NPS subscribers. In terms of contribution (AUM), we have seen a growth of around 31.5%," said Bandyopadhyay.
The PFRDA chairman said pending issues like introducing flexible annuities and systematic withdrawal plan is being taken into consideration to provide better facilities to NPS subscribers in the near future.