Pension regulator pitches for easier switching from EPF to NPS

Sarbajeet K SenMoneycontrol

The Pension Fund Regulatory and Development Authority (PFRDA) has sought changes in the legal and taxation provisions to enable smooth switchover from Employees’ Provident Fund (EPF) to National Pension System (NPS). In its wish-list for the forthcoming Union Budget, the pension regulator has  asked the government to include 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.

Finance Minister Arun Jaitley had proposed in the Union Budget of 2016-17 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.
“The government had said last year that EPFO members would be given a one-time choice to move to NPS. But apart from the statement nothing else has happened. The enablers are not in place. People have to be very clear in their minds on how this shift will work and what will be the impact. Unless that happens, this provision will not work,” Chairman, PFRDA, Hemant Contractor, told Moneycontrol.com.

The PFRDA Chairman, however, pointed out that legal provisions mandate most employees to be part of the EPFO and an amendment to the EPF Act would act as a facilitator. “At present, EPFO is a mandatory scheme and those who are covered have to come under it. When you are saying they will be given an option, there needs to be appropriate changes in the EPFO Act also,” Contractor said.

He also pointed out that facilitating a seamless transfer for those who are willing to switch would entail parity on tax treatment. “One big obstacle is that EPFO is an Exempt-Exempt-Exempt (EEE) scheme and NPS is EET (where withdrawals are taxable) scheme. There will invariably be some hesitation to move from an EEE to an EER scheme. Unless that is done no one will be willing. So, we have renewed our plea for complete parity on the tax front with the EPFO,” Contractor said.

The government had provided some relief to the NPS on the taxation front in the previous Budget. However, 20 percent of the corpus at withdrawal still remains taxable. Under the structure, 40 percent is non-taxable, and another 40 percent has to be mandatorily invested in annuities. “The remaining 20 percent should also be put under the exempt category. Otherwise, there will be hesitation among EPF subscribers to move to NPS,” The PFRDA Chairman said.