Finance Minister Pranab Mukherjee announced new measures to support the New Pension System (NPS) but will these measures help to re-vitalise the NPS as well as the stock market?ย
Well, the fineprint of the Budget has it all, as the government tries its best to attract the self-employed to invest in NPS by exempting it from securities transaction and dividend distribution tax.ย
However, experts say there are few takers for the NPS, as it still continues to be under the exempt-exempt-taxed (EET) regime with the maturity amount being taxed unless the money is used for buying annuity in the same financial year.
This is unlike other competing products like Provident Fund (PF) and Public Provident Fund (PPF), which continue to enjoy the exempt-exempt-exempt (EEE) regime and not taxed at any stage.
That explains why only 800-900 non-government applications with a total investment of up to Rs 15 lakh have fallen in its lap since May versus Rs 2,500 crore invested by government employees, who have joined service after 2004.
Experts believe unless PF and PPF schemes are brought under similar tax structures, NPS is unlikely to pick up and nor will the benefits accrue to the stock market.
Kalpana Morparia, head of JP Morgan India, said, "Seventy per cent of Indians are under the age of 35. If you can channelise even a small proportion of their current earnings into equity market, it would mean long term and domestic money coming in."
However, Rashesh Shah, chairman of Edelweiss Capital, said that it would still take time for the NPS to pick up.
Meanwhile, the six funds managing the new pension scheme charge an annual fee of only a .0009 per cent, much lower than its competing products.
But unless tax structures are brought at par with other tax saving schemes, there is little hope for the product.