Tax exemption likely for initial contribution to New Pension System

The New Pension System (NPS) is likely to get a budget booster with the finance ministry considering income tax exemption for initial contribution to it, so that more people would opt for the scheme.

The Pension Fund Regulatory and Development Authority (PFRDA), the interim regulator for pension funds, has moved the finance ministry seeking tax exemption on contribution to the fund at the entry level.

"At the entry stage, we expect tax exemption in the coming budget," PFRDA sources said.

The NPS, which could be used to raise long-term funds for infrastructure development, has so far evoked lukewarm response from subscribers.

The central government had made the New Pension System mandatory for its new recruits (except defence forces) from 1 January 2004. A majority of state governments have also shifted to the defined contribution based new pension system from varying dates.

The NPS architecture, consisting of the NPS Trust, Central Recordkeeping Agency, Pension Fund Managers, Trustee Bank and Custodian, was made operational for Central Government employees from 1 April 2008.

The NPS architecture has also been offered to the state governments to manage the pension corpus of their employees. The state governments are at different stages to
adopting the NPS.

The NPS corpus of central government employees now stands at over Rs2,100 crore. Accding to the unaudited results of the pension funds, the three pension funds have generated returns varying from 12 per cent to 16 per cent on the NPS corpus during the year 2008-09, weighted average return being over 14.5 per cent.