PFRDA has clarified that the subscribers of EPF will not be taxed if they switch to NPS.
In a circular, PFRDA said, “The amount so transferred from recognized provident fund to NPS is not treated as income for current year and hence not taxable.”
PFRDA said that the subscribers would have to open an NPS account before switching to it.
Experts believe that employees should switch to NPS as it provides better risk adjusted returns and additional tax benefits. A Mumbai-based IFA says that NPS has an edge over EPF due to higher exposure to equities. He says that the asset allocation in NPS is better than other recognized pension schemes
Suresh Sadagopan of Ladder7 Financial Advisories has a different opinion on this. He says that the employees should continue to hold EPF as it provides assured returns.
Though PFRDA has issued a clarification on this, the operations and procedural modalities are still awaited.
Earlier in budget 2015-16, the finance minister had proposed to exempt EPF subscribers on switching to NPS.
A senior pension fund official told Cafemutual that the government had asked Labour Ministry to work on the modalities of this proposal. “In fact, the ministry had formed a committee which has already submitted its report to Law Ministry but they have raised some questions on the applicability of this proposal.”
Manoj Nagpal of Outlook Asia Capital told Cafemutual that subscribers would not be able to switch from EPF to NPS until EPFO issues any clarification on this. “Currently, EPFO is governed by the Ministry of Labour of Employment and they will have to amend the existing regulation to introduce this clause,” he said.
