 "NPS added 19% fewer fresh corporate subscribers in first half of FY24")
The National Pension System (NPS) added 19 per cent fewer new subscribers under the corporate segment in the first half (April-September, H1) of the current financial year (FY24) versus the corresponding period a year ago, according to data from the Ministry of Statistics and Programme Implementation (Mospi).
Government officials and experts attribute this to the higher exemption limit of income tax at Rs7 lakh announced in this year’s Budget. The exemption doesn’t require employees under this income bracket to opt for NPS for tax-saving purposes.
The data collated from the MoSPI revealed that the corporate component saw 96,937 new subscribers in the first six months of FY24 against 119,754 new subscribers enrolled during the same period last year. Corporate subscribers are majorly voluntary subscribers and are mainly the employees of central and state public sector undertakings, besides private sector employees.
“People enrol under the corporate component of the NPS to take tax benefits as they see it as a tax-saving instrument, rather than a long-term pension or savings product. So, when the finance ministry [decided to] raise the exemption limit earlier this year, people belonging to these income slabs saw no incentive to enrol under the NPS, and this explains the decline in subscribers starting March itself,” said an official.
In her Budget speech this year, Finance Minister Nirmala Sitharaman announced changes to the income tax slabs and rebate limits. Under the new income tax regime, the exemption limit was raised to Rs7 lakh from Rs5 lakh, indicating that the person who earns less than Rs7 lakh annually need not invest anything to claim exemptions and the entire income would be tax-free irrespective of the quantum of investment made by such an individual.
Deepesh Raghav, a Sebi-registered investment advisor, said the move gave more consumption power to the middle-class income group as they could spend the entire amount of income without bothering too much about investment schemes to take the benefit of exemptions.
More From This Section
“Unlike employee provident fund (EPF), NPS is one of the very few ‘proper’ pension products available in the market. Due to the lack of awareness, people majorly deploy it to earn tax rebates available under various sections of the Income Tax Act. In India, where it is necessary for people to save and invest for their future pension needs, the diversion of people away from NPS is concerning,” he further said.
Managed by the Pension Fund Regulatory and Development Authority, the NPS is designed on a defined contribution basis as both the subscriber and the employer contribute an equal amount to a person’s account.
To facilitate the organised entities including public sector organisations to extend old age social security benefits to their employees and co-contribute for their pension with flexibility in the amount of contribution from employee/employer, a customised and voluntary version of NPS, known as the NPS-Corporate Sector Model, was introduced in December 2011.
“In all its years of operation, NPS has suffered due to the lack of awareness among the employees and poor product placement in the market.
It is time that we position it differently, other than as a tax-saving instrument. [We] have also written to the finance ministry to look at the issue and make it more attractive to the people to save and invest in it,” added the official quoted earlier.