Pension regulator body Pension Fund Regulatory and Development Authority (PFRDA) has declared that funds transfer to National Pension System (NPS) accounts from provident fund accounts will not be taxed any longer.
With a number of queries being raised about the transfer of money from recognised provident fund schemes to National Pension Scheme (NPS), the PFRDA clarified the process through a circular yesterday.
The circular, besides specifying the process for carrying out transfers, stated that any funds transferred from a recognised Provident Fund to NPS cannot be treated as income in a given year and hence can’t be taxed.
This also means that the subscriber will not be required to make tax deduction claims on the transferred provident/superannuation fund.
The pension regulator had asked the government to include an amendment to the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, and a level-playing field on tax treatment to facilitate seamless changeover to NPS by EPF subscribers before the budget session this year.
The proposal to allow subscribers from recognised Provident/Superannuation Funds to transfer their corpus from such funds to NPS without any tax being imposed was first made by Finance Minister Arun Jaitley in the Union Budget of 2016-17. This would be a one-time tax exemption to EPF subscribers to switch to NPS. Thus there would be no additional tax implication on the subscriber for making the switch.
But apart from the statement nothing else happened. The enablers are not in place. The system, however, is now in place and operational.
According to PFRDA, to affect the transfer the subscriber must have an NPS Tier I account that’s active. This account has to be opened through the Points-of-Presence (POPs) via e-NPS online, or by asking the employer to do so (where NPS is already implemented).
A government employee planning to transfer his Provident funds will have to apply for the same to the Provident Fund Trust via their current employer. The PF authority will then issue a cheque/draft in favour of the NPS account of the subscriber.
For private sector employee subscribers, including those subscribing to All Citizen’s Model NPS, the subscribers should request their provident/superannuation fund to issue a letter to their current employer/PoP, highlighting the amount that is to be credited in the NPS account of the employee/ individual Tier-I account from the PF/superannuation fund.
The Pension Fund Regulatory and Development Authority (PFRDA) said that the NPS is gaining ground in the retirement scheme market compared to other pension products. The PF regulator had been receiving a lot of queries related to transferring of funds to NPS account.
The NPS also received a boost in this year’s Budget with the Minister of Finance, Arun Jaitley, announcing tax sops on early funds withdrawal. All withdrawals from the NPS up to 40% of the corpus are now exempt from income tax, when the subscribers reach 60 years of age. Altogether, a 60 year old NPS subscriber can withdraw funds amounting to 60% of the maturity corpus, converting the remaining amount into annuity.