In a move that will make the New Pension System launched by the Pension Fund Regulatory and Development Authority (PFRDA) more attractive, Finance Minister Pranab Mukherjee’s budget has extended the benefits of section 80CCD of the Income Tax Act to self-employed people, extending an income tax exemption thus far available only to employees in the organised sector.
The budget 2009-10 also proposes that all amounts in the NPS is contributed to the insurer for annuity will not be taxable and will attract tax at the applicable rate as and when the person receives the annuity.
“We are happy with what has been done as the government has decided to provide fiscal support which means the government will bear some admin cost. However, I will construct the details on within a fortnight,” said Dhirendra Swarup, chairman, PFRDA.
The finance minister also announced that the NPS trust will remain exempt from income tax and also from dividend distribution tax thus making investments into the scheme more attractive. The scheme is already the cheapest investment product available in the country.
Even the investments into equities and derivatives by the NPS trust will be exempt from securities transaction tax which stands at 0.125 per cent for investments in stocks.
The NPS, which was launched on May1, 2009 for all individuals, attracted only around 500 subscribers in the first two months of the launch. With the tax benefit now available to the self-employed individuals, it has turned more attractive.
While the PFRDA chairman had proposed for a exempt- exempt- exempt (tax treatment at the stages of investment, accumulation and withdrawal) regime for the NPS in line with public provident fund (PPF), the government has decided to continue with the exempt- exempt-taxed method of tax treatment as of now.