Budget 2017 should look to make the National Pension Scheme (NPS) more tax-friendly and make it part of the EEE (Exempt, Exempt, Exempt) regime, recommends FICCI. According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the NPS should be moved to EEE regime, from the current EET (Exempt, Exempt, Tax), on the lines of other retirement schemes like Employee Provident Fund (EPF) and Public Provident Fund (PPF).
In its pre-Budget 2017 memorandum, FICCI notes, “Currently, NPS works on EET regime whereby the monthly/periodic contributions during the pension accumulation phase are allowed as deduction and the returns generated on these contributions during the accumulation phase are also exempt from tax, however, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are partially taxable in the hands of the taxpayer in the year of receipt of such amount.” “An amendment was introduced by Finance Act, 2016, wherein forty percent of the accumulated corpus upon withdrawal/ superannuation was made tax-free whilst balance corpus of sixty percent continues to be taxable,” it says.
FICCI believes that “in order to encourage taxpayers to make voluntary higher contributions towards NPS, it should be made more tax-friendly as the objective of this scheme is to create a pensionable society.”
Additionally, FICCI says, “the benefit of 40% exemption for withdrawal from NPS by any employee be extended to withdrawals by any person and not just employees. It is suggested the sub-section (12A) of section 10 of the Act providing for exemption of 40% of payment from NPS Trust to “an employee” on closure of account or opting out of pension scheme, may be modified to allow such exemption to payment from the NPS Trust to “an individual”, since exemption under the said clause is available in respect of withdrawals from NPS by self-employed individuals also.”
Budget 2017 is widely expected to bring in cheer for taxpayers, especially in the backdrop of demonetisation of old Rs 500 and Rs 1000 notes. FICCI has also urged Finance Minister Arun Jaitley to revise the current income tax slabs and bring them at par with international standards. “Currently, the peak tax rate of 30% is made applicable over an income of Rs 10 lakhs for individual taxpayers. However, the income level on which peak rate is applied in other countries is significantly higher,” says FICCI. FICCI has recommended revised tax slabs for individual taxpayers, where a 30% tax rate should be applicable only if the income is above Rs 20 lakh. For taxpayers in the bracket of Rs 10 lakh to Rs 20 lakh income, FICCI recommends that the tax slab should be 20%.