NPS: Pension regulator to pitch for favourable tax treatment for NRIs

July 29, 2015

Indian policymakers are wooing Non-Resident Indians (NRIs) in a big way so that they could park their surplus in local financial assets here.
On the heels of allowing NRIs to invest in NPS, pension regulator Pension Fund Regulatory and Development Authority (PFRDA) has decided to pitch for a favourable tax treatment on the same footing as those available for NRI investments in other government schemes.
The aim is to ensure that NRIs are not discouraged from investing in National Pension System (NPS) due to tax reasons at the withdrawal stage.
NRE accounts
The PFRDA plans to soon approach the Central Board of Direct taxes (CBDT) to clear the air around taxability of NPS monies invested out of Non-Resident (external) (NRE) accounts maintained by NRIs.
PFRDA wants to ensure that monies invested in NPS out of the NRE account get a similar, favourable tax treatment as available for investments made out of such accounts into other schemes such as public provident fund, general provident fund, etc. “There should be no adverse tax treatment for NRI monies invested in NPS through the NRE accounts. Any attempt to subject them to tax would only dampen NRI interest in NPS as a product,” RV Verma, Wholetime Member, PFRDA, told BusinessLine.
Regulatory decks have recently been cleared for NPS to be considered as an eligible investment for NRIs.
Bringing NRI monies into NPS would also be beneficial for the country as it would be another source of long-term funds that could be utilised for development purpose.
Withdrawal rules
Currently, investment into NPS attract the Exempt-exempt-taxable (EET) model of taxation where all initial contributions and accumulations are tax exempt, while withdrawals at the time of retirement is subjected to tax. Only the non-annuitised lump sum is subjected to tax.
NPS guidelines stipulate that 40 per cent of the amount standing on the date of retirement should be mandatorily utilised for purchasing annuities.
The pension regulator has also now allowed partial withdrawal to the extent of 25 per cent and this regulation has recently been notified.
Private sector nps
PFRDA is expected to next month take a final call on the new investment norms for private sector NPS which currently had corpus size of about 7,000 crore.
The Board of PFRDA is likely to meet in August to take a final view on the recommendations of the Bajpai committee report as regards investment norms for NPS monies.
The pension regulator is also planning to allow private sector NPS monies to be parked in venture capital and private equity funds in the coming months, according to PFRDA Chairman Hemant Contractor.
(This article was published on July 26, 2015 The Hindu Business Line)