Pension fund savings may get tax-free

Pradeep Thakur & Sidhartha | TNN

New Delhi: Soon, there could be another reason for you to save for old age. The government may completely exempt investments in pension funds from taxes.
While money parked in pension funds at present entitles investors to a tax rebate at the time of investment and during the period it earns returns, a tax is levied at the time of withdrawal.
As a sweetener aimed at encouraging people to invest and also blunt the Left's opposition to the new pension system, the Pension Fund Regulatory & Development Authority has approached the finance ministry to treat investments in these instruments at par with employees provident fund and public provident fund, which enjoy complete tax waiver.
Sources said that the pension regulator has also pushed for raising the overall investment limit under section 80C of the Income Tax Act beyond the present level of Rs 1.1 lakh.
At present, PFRDA's interest stems from the Rs 3,000 crore that is sitting with the government and could flow into the stock and the debt markets over the next six to eight weeks. The money has been contributed by government employees as part of the contributory system that kicked in for those who joined service from January 1, 2004.
Sources said that with the sixth pay commission's report also expected to be implemented later this year, the government seemed favourably inclined to accept the proposal as it would push up the overall savings rate too. As part of the push to create more jobs, both Prime Minister Manmohan Singh and finance minister P Chidambaram have repeatedly pushed for higher savings rate, estimated at 34.8% at the end of 2006-07, to raise the level of investment in the economy.
In addition, companies have argued that in the absence of a social security system for people working in the private sector, whose numbers are rising rapidly, there is enough reason to encourage people to save in long-term instruments like pension products which can also be deployed in bonds that mature after 25-30 years. These bonds could be used to finance infrastructure projects.