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Retirement PFRDA bats for uniformity in taxation in pension products

PFRDA bats for uniformity in taxation in pension products

In its budget wish list sent to the Ministry of Finance, PFRDA has also sought clarification on whether it can regulate pension fundsoffered by mutual funds and life insurance companies.
Jan 2, 2017

In its budget wish list sent to the Ministry of Finance, PFRDA has sought uniformity in taxation of all pension products, said Dr. BS Bhandari, Whole Time Director, PFRDA on the sidelines of an industry event recently in Mumbai.

Simply put, the pension fund regulator has requested the Finance Minister Arun Jaitley to give EEE status to NPS subscribers i.e. exempt, exempt and exempt status. Currently, NPS comes under EET (exempt, exempt and tax) status under Section 80 CCD.

This section provides tax benefits over and above the 80C limit which is currently Rs.1.5 lakh annually. Investors get tax deduction of up to 10% of salary, subject to upto Rs.1.5 lakh on contribution towards pension funds. In addition, NPS subscribers also get an additional deduction of up to Rs. 50,000 which is over and above the limit of Rs.1.50 lakh in respect of contributions made to NPS. A rough calculation indicates that investors falling under the highest tax slab, i.e. 30.90% can save up to Rs. 15,450 per annum in tax.

Bhandari had said that a few pension fund schemes have advantage over NPS in terms of taxation. He said that currently PPF and EPF are enjoying EEE taxation status. He expects that the FM should consider their proposal and create level playing field among pension products.

Another recommendation that PFRDA has made is allowing them to regulate pension schemes offered by AMCs and life insurance companies. In fact, he told reporters that the government had constituted a panel to see if PFRDA can regulate pension schemes offered by AMCs and life insurance companies.

Since PFRDA Act empowers the pension fund regulator to regulate all kinds of pension business in India, PFRDA has sought clarification from the government to know if it can regulate the pension schemes offered by AMCs and life insurance companies, he said.

He further said that if this goes through, PFRDA will ask fund houses and life insurers to take approval from PFRDA to run pension schemes.

Currently, SEBI regulates pension schemes offered by AMCs. However, they are required to take CBDT’s approval to offer tax benefits to investors before launching such products. Similarly, IRDAI regulates pension schemes offered by life insurance companies.

IFAs can now distribute NPS by registering themselves as Retirement Advisers with PFRDA. Advisers will have to clear a NISM test to acquire this license.

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