There are clear indications in the Union Budget 2016 that the Government intents to support the National Pension System (NPS). The Pension Fund Regulatory and Development Authority (PFRDA) had been asking the government to make NPS tax-free as is the case with other pension products.
Though the government has not conceded to that demand, it has brought pension products at par as far as tax treatment goes. The big change in the budget announcement was that the NPS, which was taxable on maturity, has now been made partially tax exempt, and the EPF and superannuation funds, which were tax-free on maturity, are now partially taxable. In the case of NPS, 40% of the maturity proceeds from the financial year (FY) 2016-17 is exempt from tax.
The NPS is a defined contribution system in which you contribute every year till 60 years of age. At 60 the amount is available for withdrawal, since it’s a dedicated pension product, 40% of the corpus on maturity has to be annuitised. Annuity is a pension product that gives you periodic income during the retirement years. The remaining 60% can be had as lump sum. The budget has announced that withdrawal up to 40% of the corpus at the time of retirement will be tax exempt in the case of NPS.
While Pension Fund Regulatory and Development Authority (PFRDA) has reasons to celebrate, the Employees’ Provident Fund Organisation (EPFO) has reasons to be worried. The budget has further announced that in case of superannuation funds and recognized provident funds, including the EPF, the same norm of 40% of the corpus to be tax-free will now apply in respect of the corpus created out of contributions made in the products after 1 April 2016. However, this restriction shall not be applicable to an employee participating in a recognised provident fund and whose monthly salary does not exceed `15,000.
@Agency report.
