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Q. Tax parity b/w EPFO and NPS: Comment on the need to bring tax parity between National Pension System and Employees Provident Fund.
Jan 09, 2017 Related to : GS Paper-3

Ans :

 Introduction-

The Pension Fund Regulatory and Development Authority (PFRDA), which regulates National Pension System (NPS), have requested the government to bring tax parity for National Pension System with that of Employees Provident Fund and Public Provident Fund.

Issue-

NPS subscribers have to pay tax at maturity, unlike the EPFO members, who are exempt from tax at all three stages of contribution, accumulation and withdrawal.


  • Analysis-
  • Savings should be exempt from tax at the time of contribution and accumulation and taxed at the time of withdrawal only when the money is not ploughed back into another saving product.
  • The pension regulator PFRDA is right to seek tax parity for members of the subscribers of NPS and EPF.
  • The government must ensure tax parity to popularise NPS, which has lower administrative costs besides superior returns.
  • Tax parity will enable more voluntary subscribers to join the NPS, the tax-exempt saving allowed now is low, and in combination with the Public Provident Fund, makes contributions to the NPS effectively out of taxed income for people with even moderate incomes.
  • The pool of funds to be managed will become much larger when workers are also allowed to move the mandatory saving from their wages to the NPS.


Conclusion-

There is an urgent to bring the tax parity on all pension scheme subscribers. Similarly there must be a provision of migration from one policy to another if employee desires. Hence the government must quickly bring tax parity policy and also resolve legal hurdles to implement an earlier Budget decision to let workers voluntarily migrate to the NPS.


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