Budget 2017: Is NPS a good retirement plan despite withdrawals being taxed?
Experts feel NPS continues to be a good retiral product for the salaried segment since it is market-linked and professionally managed. The Finance Minister Arun Jaitley has left the taxation status of National Pension System (NPS) unchanged in Budget 2017. As a result, contrary to expectations, NPS remains an exempt, exempt, taxable (EET) scheme, whereas competing retirement schemes – Public Provident Fund (PPF) and Employees’ Provident Fund (EPF) -- have been enjoying the advantage of exempt, exempt, exempt (EEE) status. What does this mean for you as an investor looking to invest to build a pension corpus? Does NPS remain a good investment option in the retirement landscape to build a long-term corpus for old-age income? Investment experts believe that despite the disadvantage on the tax front, NPS remains an attractive investment option for retirement income. “NPS continues to be an excellent retiral product that the Indian salaried segment should leverage. The product is market-linked and professionally managed. In the NPS, we have an excellent platform to build social security for every Indian,” Ajit Narasimhan, Head of Savings and Investments,
Under NPS a subcriber can invest up to 75 percent of their corpus in equities. The scheme has been giving healthy returns to investors. In the past one year, most equity plans have returned over 20 percent, while government bond plans have given returns of close to 20 percent. In a recent interview to close to the Union Budget, Chairman of Pension Fund Regulator and Development Authority (PFRDA), Hemant Contractor, had said that the regulator was hoping that the government would finally accept the long-pending demand of granting EEE status to NPS. “One perennial demand (from the PFRDA to government) is to place NPS on par with other retirement schemes on taxation and make it an EEE scheme,” he had said. In the previous Budget for 2016-17, the government had provided an option to subscribers of EPF to switch to NPS. However, one of the big hurdles had been the EET tax status of NPS which was seen as a hurdle. Kulin Patel, Head of Retirement, South Asia, Willis Towers Watson, felt that NPS would have gained if the Finance Minister had brought in clarity on transfer of pension corpus balances to NPS accounts such as the EPF. “One had hoped for further operational clarity in terms of the announcement made last year on the transfer of superannuation balances to NPS accounts,” Patel said. Under the EEE or Exempt, Exempt, Exempt tax structure, all three stages of an investment lifecycle - investment, accumulation and withdrawal – are tax exempt. NPS came under the EET or Exempt, Exempt, Taxable category where the final stage of withdrawal has been taxable. Investment in NPS, however, comes with an additional deduction of Rs 50,000 above the Rs 1,50,000 deduction permitted under Section 80C of the Income Tax Act. “I would have liked to see the Rs 50,000 limit move up to Rs 100,000,” Narasimhan said.
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