The New Pension System (NPS), languishing for lack of sufficient support, got a boost on Monday from the finance minister, as the budget lined up tax breaks for both employers and employees in addition to the existing ones to encourage pension contributions.
In addition, the ambitious Swavalamban scheme, meant for lower income citizens who contribute less than Rs 12,000 per year to the scheme of the Pension Fund Regulatory and Development Authority (PFRDA) received a fillip when the minister proposed a relaxation in exit norms from the earlier 60 years to 50 years — or a minimum tenure of 20 years.
In his budget speech on Monday, the finance minister also increased the tenure of government contribution to those accounts by two years. All subscribers of Swavalamban who enroll in 2011-12 will get an additional benefit with the government extending its contribution from three to five years.
NPS, which has witnessed a tepid response till now will turn attractive beginning April 2012, with the Direct Taxes Code proposing to include it into the list of four investment avenues that will qualify for tax benefits under section 80C.
The government has come out with an option to incentivise NPS investments by the employee and employer and keep the employer component out of the Rs 1-lakh limit. “It is proposed to amend section 80CCE so as to provide that the contribution made by the Central government or any other employer to a pension scheme under section 80CCD(2) shall be excluded from the limit of Rs 1 lakh provided under section 80 CCE,” the Finance Bill said. The benefits can be claimed on the same beginning April 2011.
{{/usCountry}}The government has come out with an option to incentivise NPS investments by the employee and employer and keep the employer component out of the Rs 1-lakh limit. “It is proposed to amend section 80CCE so as to provide that the contribution made by the Central government or any other employer to a pension scheme under section 80CCD(2) shall be excluded from the limit of Rs 1 lakh provided under section 80 CCE,” the Finance Bill said. The benefits can be claimed on the same beginning April 2011.
{{/usCountry}}The Swavalamban scheme was launched on September 26, 2010. Under the scheme, the Centre will contribute Rs1,000 for accounts that have a minimum contribution between Rs 1,000 and Rs 12,000 per annum. The scheme has received 400,000 applications till now.
“The move will act as an encouragement for the weaker sections as it gives the message that the government is adding to their savings,” said Rani S Nair, executive director, PFRDA.