TAXATION OF RECOGNISED PROVIDENT FUND (RPF) & NEW PENSION SCHEME (NPS)
After presenting budget, an ambiguity exist regarding the tax treatment of RPF & NPS therefore Ministry has issued clarification in this regards as under :
1.The Government has announced that forty percent of the total corpus withdrawn at the time of retirement will be tax exempt both under recognized Provident Fund and NPS
2.Government aims to encourage employees of private sector to go for pension security after retirement rather than withdrawing amount from PF Account.
3.There will be no tax if legal heir receive corpus, in case of person invested in annuity dies.
4. The main category of people for whom EPF scheme was created are the members of EPFO who are within the statutory wage limit of Rs.15,000 per month. Out of around 3.7 crore contributing members of EPFO as on today, around 3 crore subscribers are in this category. For this category of people, there is not going to be any change in the new dispensation.
5 There would be monetary ceiling of Rs1.5 lakh on employer contribution considered with the ceiling of the 12% rate of employer contribution, whichever is less.
6. Currently there is no monetary ceilings on the employer contribution under EPF with only ceiling being that it would be 12% of the salary of the employee member. Similarly, there is no monetary ceiling on the employer contribution under NPS, except that it would be 10% of salary.
7. It is expected that the employees of private companies will place the remaining 60% of the Corpus in Annuity, out of which they can get regular pension. When this 60% of the remaining Corpus is invested in Annuity no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in annuity.There is no change in the existing tax treatment of Public Provident Fund (PPF).
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