More benefits in National Pension Scheme for small investors

NEW DELHI: The government will change the withdrawal rules and provide more tax incentive to make National Pension Scheme ( NPS), its flagship retirement savings scheme, more attractive for small savers.

The Pension Fund Regulatory and Development Authority ( PFRDA) is expected to soon changes the rules to allow NPS subscribers who have an accumulated corpus of less than Rs2 lakh on retirement to withdraw the complete amount.

Under the current rules, the subscriber can only withdraw a maximum of 60% of corpus while the rest 40% has to be used to buy an annuity, a monthly payment.

The central government is expected to weigh in by not taxing the lump sum amount the subscriber will receive on retirement. Under the current rules, the Tier-I account under the NPS has an exempt-exempt-taxed (EET) status, that is any contributions to the schemes and its earnings are not taxes but amount received on withdrawal is taxed.

“The rationale is that Rs2 lakh is not a considerable amount that can be turned into monthly or yearly annuity. Given the current inflation and overall economic scenario, it is best that lump sum payment is made,” said a PFRDA official, requesting anonymity.

“We expect the government to make the suitable changes in the tax structure,” the official said, adding that under the proposed Direct Tax Code (DTC), tax treatment for contribution in Tier I account will have EEE status.

The regulator will also not increase the minimum amount (Rs6,000), required to be invested annually under the NPS scheme as it may discourage small investors.

At present, Under NPS, Tier I is a non-withdrawable account, and a pre requisite for opening of a Tier II, where a subscriber can withdraw their savings anytime. Tier II account does not enjoy any tax benefit.

In March 2013, the PFRDA had allowed exiting subscribers the option to defer the withdrawal of the amount and stay invested in the scheme till the age of 70.

It had, however, clarified that no fresh contributions will be accepted and also no partial withdrawals will be allowed during such a period of deferment. As per the PFRDA official, the return on NPS schemes is higher than Employees Provident Fund (EPF) and Public Provident Fund (PPF).