February 2018 could observe the finance ministry headed by Arun Jaitley to consider incentivizing the National Pension Scheme. The ministry could either offer exemptions to investments made on NPS or improve the current slab rates.
NPS was offered a boost in the previous budget with the government announcing a tax benefit under section 80 CCD (1b) and then making 40% corpus tax exempt on maturity.
Under the current tax environment, NPS investments, are already a last minute investment avenue. For FY 2017-18, individuals can claim NPS benefits under the tax bracket of 10%, 20% and 30%. Moreover, in cases where an employer is contributing towards NPS deductions, employees can claim additional 10% as a deductible component from their taxes.
Within the current scheme, NPS has a partial tax exemption, but there is a likelihood that the government may make it completely tax-free. Investors of the NPS scheme have a partial tax exemption on maturity amount, although the post retirement amount is taxable in the year of the receipt.
Inspite of the existing concessions, NPS still had ground to cover over products such as Employee Provident Fund (EPF). The Pension Fund Regulatory Development Authority's Chairman was recently quoted saying in an interview that the NPS scheme ought to be treated on par with products such as EPF on the tax front.
He was hinting towards making it more lucrative in order to get more customers. Having conceptualized in January 2004 as a complusory investment for government employees, the scheme was thrown open to the general public only by 2009. By 2016, the total subscribers in the all-citizen model was 2.61 lakh, while corporate figures fetched another 5.21 lakh customers, taking the total number of subscribers to 7.82 lakh.
The PFRDA annual report itself claims an AUM (asset under management) of Rs 1838 core, while EPF, in comparison had a staggering Rs 8.5 lakh crore assets under management.Previous Budgets:
The previous two budgets have observed the FM make minor tweaks to the National pension scheme. In 2016, the government announced a partial exemption status of 40 percent. An additional tax benefit to section 80CCD (1B) upto a limit of Rs 50,000 was also introduced in 2016.
In budget 2017, Jaitley also proposed amending Section 10. This would offer an exemption to a partial withdrawal, which would not exceed 25% contribution made by an employee. This amendment will take effect from April 1 2018 for FY2018-19 and subsequent assessment years.
Image Credit: Abhijitkumar Rajput