The 2014 Budget
had mentioned that there would be ‘uniform tax treatment for pension fund and mutual fund-linked retirement plans’. However, the Central Board of Direct Taxes is yet to give details on the tax treatment of these plans.
At present, UTI Retirement Benefit Pension Fund and Franklin Templeton Pension Fund are the only pension schemes with a track record of more than 10 years. Reliance Retirement Fund (with wealth creation and income generation options) and HDFC Retirement Savings Fund are two recent entrants.
Fund houses like SBI MF, DSP BlackRock MF and Axis MF have filed draft offer documents with Sebi to bring out retirement-linked schemes.
“About 65% of first-time investors in the US invest in mutual funds through 401(k) plans,” said Kaustubh Belapurkar, director —research, Morningstar Investment Advisor. “Giving a tax incentive for MF retirement plans will significantly boost inflows into the Indian MF sector.”
The 2015 Budget
had increased the maximum possible deduction under the National Pension System (NPS) to Rs 1.5 lakh, from the earlier Rs 1 lakh under Section 80C. It also allowed for an extra deduction of Rs 50,000 under 80CCD, over and above the limit under 80C.
Pension plans from fund houses score over NPS in two ways. Till recently, one could not invest more than 50% in equity through NPS, with the investment restricted to Nifty-50 stocks, in the same proportion as their weight in the index. However, recently, Pension Fund Regulatory and Development Authority introduced an Aggressive Life Cycle Fund that allows subscribers equity exposure of up to 75% till they turn 35, after which the equity portion is brought down by 4% per annum till 45 years, by 3% between 45 and 50, and by 1% between 50 and 55 years. MF retirement plans have no such restrictions.
In the case of NPS, at least 40% of the corpus has to be compulsorily annuitised after attaining 60 years, which is fully taxable. Out of the 60% corpus that can be withdrawn after attaining 60 years of age, only 40% is tax-free. For MFs, equity-oriented pension plans are completely tax-free if units are held for more than one year.
Debt-oriented pension plans are taxed at 20% with indexation, but this tax will be negligible or nil if the holding period is more than 10 years.