Over the past few years, more and more Indian investors are finding the National Pension System (NPS) a beneficial long-term investment avenue. In fact, given that the government has decided to give NPS exempt-exempt-exempt (EEE) tax status, it will now become a much more attractive investment avenue, especially for the retail investors (non-government subscribers).
As per Hemant Contractor, Chairman, PFRDA, one of the major growth hurdles for NPS was the absence of EEE status. This is largely because investors often compare NPS with EPF and PPF as tax savings products. This decision of the government, in his opinion, will help in brining NPS on par with EPF and PPF as a tax savings investment. EEE status for NPS means that investors get tax exemption at various stages of investment such as contribution, accumulation, and withdrawal. As of today, PPF and EPF enjoy EEE tax status, which is why it is crucial for NPS to have it as well to compete with these two products.
The PFRDA chairman also made a clarification that the decision of the centre to allow government subscribers to choose a private fund manager will apply only in case of fresh inflows. In case of existing balances, especially since the amounts are quite large, the PFRDA has suggested a 5-year time period for transferring old balances.
One may recall that PFRDA did not recommend the aggressive fund, which covers up to 75% equity. The other decision of the PFRDA of allowing up to 100% investment in government securities for government subscribers has been accepted now by the centre. The PFRDA chairman said that have only received a broad communication on these latest decisions of the government on NPS. Further, he stated that the PFRDA was still waiting on the fine print with regards to the same.
That said, the latest decision taken by the government with regards to NPS, especially the EEE status decision, has come as a pleasant boost to the pension industry. However, the only time will tell whether the results owing to this move will be as per plans.
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