The pension fund players are enthused over the budgetary announcement that the government will contribute Rs 1,000 annually for opening every new account under New Pension Scheme (NPS) for first three years.
To avail government?s contribution, which is applicable for people working in the unorganised sector only, the account must be opened between April 1, 2010, and March 31, 2011.
Talking to FE, UTI Retirement Solutions CEO Balram Bhagat said the government?s move will have a true impact as it will inculcate saving habit as a social security measure. Government?s contribution will certainly enthuse subscribers to open the new NPS account.
H Sadak, chief executive officer of LIC Pension Fund, said, ?Giving Rs 1,000 as an incentive is a very positive and encouraging initiative for making NPS as important vehicle for retirement savings. This will reduce the initial cost as more money will be available for investment by the fund managers and thus, have a long-term positive impact on accumulation of members account. But the problem is the institutionalisation of this incentives. The benefits will be available when an account is opened. An institutional mechanism is required to encourage and attract the people in the un organised sector to open an NPS account.? According to him, it is the rust factor that play an important role.
The Budget has also brought clarity that on tax benefits for the subscribers to the NPS. All the initial contribution to the scheme will be eligible for income tax rebate under Section 80 CC (D) in overall limit of Rs 1 lakh under Section 80 (C) of the IT Act. It means that the subscriber can avail oneself of the tax rebate while depositing the premium and there will be no accrual of income tax at the time of accumulation as it would be covered under EET (exempt, exempt & tax).
However, the subscribers will be asked to pay income tax at the time of withdrawal of the amount at the time of maturity.