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Investor can make pension scheme totally tax exempt
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Investor can make pension scheme totally tax exempt
Retired_ RomEO
According to the provision in the Finance Bill, 2009, any amount set aside by the subscriber for purchase of annuities at the time of exiting the scheme will be tax exempt while only the portion that is taken as lump sum will be taxed. However, the annuities have to be purchased in the same year in which the subscriber has exited the scheme.
Pension subscribers can purchase annuities from insurance companies out of the accumulated pension wealth, either using their total accumulated amount or part thereof. The amount is then paid to them as monthly pension according to the specific arrangement with the insurer.
Finance minister Pra-nab Mukherjee said the amount that a subscriber puts in for purchase of annuities will not be treated as income for the year and, hence, it will be exempt from taxation.
Under the EEE system, the entire lifecycle of pension investment by a subscriber — which includes accumulation, investment and payout (withdrawal) stages — are exempt from taxation. However, in an EET system, the final stage of withdrawal is taxed.
Rani S Nair, executive director of Pension Fund Regulatory and Development Authority, felt that the decision to exempt the amount set aside for purchase of annuities from taxation will be a substantial relief for subscribers.
“According to the provision, the income stream (that is the lump sum payment) will be taxable while the entire amount that goes into purchase of annuities will be tax-exempt. This will provide some relief to subscribers,” Nair said.
However, she felt that it would have been better had the entire cycle that a subscriber’s money has to travel through been exempted from taxation. “Our suggestion was to move to the EEE status for the NPS,” she said.
Gautam Bhardwaj, director of India Invest Economic Foundation (IIEF), a thinktank on pension reforms, felt the government’s decision to retain the EET status for NPS might come in the way of attracting more investors into the system.
“In itself, EET is not bad as it inculcates discipline on the part of the subscriber. This makes people think twice before withdrawing their savings at one go due to the tax incidence. However, EET does become a disincentive for NPS because of the prevalence of other competing schemes that are EEE,” he said.
Other measures anno-unced for the NPS include exemption of transactions in securities and other instruments by the NPS Trust from the Securities Transaction Tax (STT) and exemption of income of the trust from any taxation in the interest of beneficiaries. The NPS Trust manages assets and funds under the pension system.
Source:
http://www.mydigitalfc.com/news/investor-can-make-pension-scheme-totally-tax-exe
