Pension regulator gets it right on nps

Pension regulator gets it right on nps

The pension regulator is right to seek tax parity for members of the National Pension System (NPS) and the Employees Provident Fund (EPF). NPS subscribers have to pay tax at maturity, unlike the EPFO members, who are exempt from tax at all three stages of contribution, accumulation and withdrawal. NPS subscribers have to pay tax at maturity, unlike the EPFO members, who are exempt from tax at all three stages of contribution, accumulation and withdrawal. The government must ensure tax parity to popularise NPS, which has lower administrative costs besides superior returns. The case is compelling, considering that the tax-exempt saving allowed now is low, and in combination with the Public Provident Fund, makes contributions to the NPS effectively out of taxed income for people with even moderate incomes. Tax parity will enable more voluntary subscribers to join the NPS, mandated originally for employees joining civil service from January 2004. The pool of funds to be managed will become much larger when workers are also allowed to move the mandatory saving from their wages to the NPS. The government must quickly resolve legal hurdles to implement an earlier Budget decision to let workers voluntarily migrate to the NPS. Ideally, savings should be exempt from tax at the time of contribution and accumulation and taxed at the time of withdrawal only when the money is not ploughed back into another saving product. For the exempt-exempt-tax (EET) method to be acceptable, the tax base should be much wider, and rate of tax must be significantly lower and the maximum marginal rate must kick in at a relatively higher income threshold. So, reform to widen the tax base, lower rates and prepare the ground for people to know that a slice of their retirement savings could be taxed makes sense. A swift adoption of the goods and services tax (GST) will also help widen the income-tax base. A uniform EET would do away with the absurd restriction of annuities as the only asset class that qualifies for tax exemption when savings from NPS are redeployed. Investment rules for civil servants in the NPS must be made liberal. Individual civil servants should be treated on par with voluntary savers when it comes to both choice of asset class and fund manager.