We've written to CBDT to allow one-time funds portability: PFRDA Chairman

In that case, each superannuation fund has to approach the CBDT and seek its approval in each case: Hemant Contractor

Hemant Contractor
Hemant Contractor
Indivjal Dhasmana
Last Updated : Sep 12 2017 | 12:59 AM IST
While the Central Board of Direct Taxes (CBDT) has issued a clarification that money transferred from superannuation funds to the National Pension System (NPS) are exempt from the income tax, the funds still need to seek approval from the commissioner of income tax (CIT) for this portability. Pension Fund Regulatory and Development Authority (PFRDA) Chairman Hemant Contractor tells Indivjal Dhasmana that this rule has to be changed for smooth portability. Edited excerpts:

Have you approached the government on changing rules for hassle-free transfers of funds from superannuation funds to the NPS?

We have written to the CBDT to clarify some rules that need to be changed to allow one-time portability of funds from superannuation funds to the NPS. We have told the CBDT to permit superannuation trusts to allow their members to do so without the approval of the commissioner of income tax in each case. The CBDT can make an announcement or issue notification to that effect. There has been no reply so far. 

What is the problem? Those keen on transfer can seek permission of the CIT and do so... 
 
In that case each superannuation fund has to approach the CBDT and seek its approval in each case. 

Are funds doing that?

A few — four-five — have started doing that. 

Similarly, there was a proposal in the Budget to enable fund transfer from the Employees’ Provident Fund Organisation (EPFO) to the NPS. But the EPF Act is yet to be amended for that. Have you asked the government to do so?
 
We have been discussing with the government on amending the Act. Right now, the EPF is a mandatory scheme. We are told that some work has been done on that. We hope it is done. 

But the labour ministry thinks that it should be done on a reciprocal basis. Those keen on moving from the NPS to the EPF should be allowed to do so. Your take?
 
That was not what the government announcement was. The government announcement was a one-way transfer. It was very clear on that. 

But why should anyone move from superannuation funds or the EPF to the NPS? What are the advantages?
 
There are many reasons. One is portability. If a member of a superannuation fund leaves his job and joins some other place that does not offer superannuation funds, he is stuck. If he tries to withdraw the money, tax will be levied and that in many cases would be 20-30 per cent. In the case of the NPS, there is complete portability. Secondly, he has complete control. He can decide how much he wants to put in equity, government bonds, etc. He can decide who the fund manager will be. We are now permitting withdrawal on a much more relaxed basis. The returns are very high. These are higher by at least two percentage points than what superannuation funds or the EPFO is offering. The costs are low.

There is still no tax parity between the EPF and NPS. As such, it is still advantageous to park funds in the EPF so far as tax benefits are concerned.
 
It has narrowed down considerably. When a person retires and withdraws from the NPS, 40 per cent of the fund has to be annuitised, which is tax-exempt. Sixty per cent can be taken as lump sum. Of this, 40 per cent is tax-free. He has to pay tax on only 20 per cent. We are allowing deferment, etc. If he takes out money in three-four years, he need not pay tax even on 20 per cent. 

What happened to your requests to allow up to 50 per cent of funds in equity in the case of government employees?
 
That matter is with the government. It has set up a committee to look into this and it has given its final recommendations. We hope something comes up in a month or so. 

There was a turf issue between the PFRDA, the Securities and Exchange Board of India, and the Insurance Regulatory and Development Authority on issues relating to regulating pension funds. Has any clarity emerged on the issue?
 
We have told the government that under the PFRDA Act we have been designated regulator for the pension industry. We should be the regulator for all pension products. The government will take a view on this. We had discussions on this. The government’s decision is awaited. 

A cap on foreign direct investment in the NPS is now at 49 per cent, in sync with insurance companies. Has any FDI come in pension funds?
 
FDI has not come in. We are structured very differently from insurance companies. Under the present structure, I don’t see any interest from foreign players. The structure will have to be changed. 

What change is required?
 
Insurance companies do many things in-house. They get customers, they invest the amount, they pay out. In our case, these are all distributed. Banks get us the customers, the Central Record Keeping Agency does record keeping, pension fund managers invest the money. We have to think of some structural changes.
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