Ceiling on salary savings may change

The finance ministry may re-work the ceiling of Rs 70,000 on total savings allowed on salary income, to accommodate the new tax exemption scheme for pension products, according to ministry officials.

The new pension scheme, introduced from January 1, will tax pension in the hands of employees at the time of retirement, according to joint secretary (capital markets), Ministry of Finance, UK Sinha.

Addressing a conference on the new pension scheme, organised by the chief controller of accounts, Sinha also said the interim Pension Fund Regulatory and Development Authority (PFRDA), is considering a proposal on whether subscribers to the pension schemes can be allowed to opt for annuity schemes of insurance companies before they retire.

However, revenue officials said they might not include any tax provisions on the pension sector in the vote-on-account and will leave it to the regular Budget.

The pension scheme has put in a rider that 40 per cent of the total amount that people will draw as final pension benefits on retirement, must be re-invested in annuity schemes of life insurance companies. This is expected to ensure that people do not blow out their pension fund after retirement.

Sinha said to take care of people who retire from service prematurely the PFRDA would come out with new guidelines on the subject.

He said the new employees would be entitled to gratuity and dearness allowance from the day that those fall due, instead of deferred payment as happens for the existing government employees.

He said the government would soon decide on the rate of interest that should be paid on the pension contributions from the employees, which were being parked with the Public Accounts.

This is necessary as fund managers have not yet been appointed to invest the pension funds till now.

He said Pay and Accounts Officers would have to be vigilant to ensure that there was same day transfer of monthly pension contributions made by the new central government recruits to the fund managers.

Delays that are commonplace with the accounts of the existing government employees will create problems, he said. In the absence of a Central Record Keeping Agency, the Controller General of Accounts has assumed its role as an interim measure.

The joint secretary added that the PFRDA set up with all the paraphernalia will be operational by July 1, 2004. Speaking at the same session, additional CGA, BK Thapliyal said they have already issued instructions that if an employee does not choose any fund scheme, the Pay and Accounts Officer must choose the government bond loaded "safe scheme" as the default scheme.

Earlier the CGA Aruna Makhan said there should be increasing participation of private banks in conducting more of the government business. She said this will improve efficiency and quality of service rendered by the government.

She urged the government to adopt a business-like approach in managing its resources and added that there is some thinking going on in the finance ministry on revamping the classification systems.