The New Pension Scheme (NPS) for the unorganised sector got a much-needed fillip with the revised discussion paper on the Direct Taxes Code proposing that the end proceeds under this scheme be exempt from tax.
Under the existing tax structure, the maturity proceeds under the NPS are taxed. That is, an EET (exempt-exempt-tax) method is followed. This put the scheme at a disadvantage vis-a-vis other savings instruments where the exempt-exempt-exempt (EEE) method was followed.Online GST Certification Course by TaxGuru & MSME- Click here to Join
The Direct Taxes Code had brought all the savings instruments under the EET category. However, following representations from various quarters, the Government has decided to continue with the EEE method for savings instruments such as provident fund and pure life insurance products. It also decided to include the NPS for the unorganised sector in the EEE category.
There were two major problems facing the NPS for the unorganised sector. One, taxation and second, there are no intermediaries who can sell the product to the masses. If the revised paper gets approved in the current form, it will solve one of the major problems, said Mr Balram P. Bhagat, Chief Executive Officer, UTI Retirement Solutions, one of the fund managers under this scheme.
Even after more than a year of operations, the NPS for the unorganised sector has only managed to collect around Rs 10-12 crore from less than 7,000 people.
To attract more subscribers, PFRDA had introduced the option of opening a tier-2 account wherein the subscribers can withdraw the funds at any point of time. However, even that failed to attract investors.