When he moved on to a brand new job, the second employer had no provision for a superannuation fund, so Upadhyay left his funding because it was. By 2017 it contained ₹33 lakh. Had he withdrawn it, it might have change into his taxable earnings for the yr. Being within the 30% tax bracket, he would have needed to pay almost ₹10 lakh (30% of ₹33 lakh) excluding cess and surcharge. If he waited till he turned 60, he would have obtained a 3rd of it tax-free whereas the remaining must be used to purchase an annuity. “I didn’t need to pay such an enormous quantity of tax by withdrawing it prematurely,” he mentioned.
Additionally learn: Worried about volatility? Here’s where to put your money in uncertain times.
Preeti Sharma, associate, world employer providers, tax & regulatory providers, BDO India, mentioned, “There are only a few authorized funds that permit 100% commutation/lump sum withdrawal on the time of retirement. In such a state of affairs, a 3rd of the quantity is tax-exempt and the steadiness is absolutely taxable.
“Nevertheless, if the steadiness is invested in an annuity, the worker will not be required to pay any tax on it, although the pension from the annuity will probably be taxed… Any withdrawal earlier than the age of retirement, aside from within the occasion of dying, is absolutely taxable.”
View Full Picture
Funds 2017 introduced aid
Union Funds 2017 delivered excellent news for Upadhyay, as then finance minister, the late Arun Jaitley, introduced {that a} recognised provident fund/superannuation fund might be transferred one-time to the Nationwide Pension System (NPS) with none tax legal responsibility. “I received maintain of the PFRDA (Pension Fund Regulatory and Improvement Authority) round. Now I needed to attain out to my first employer to start out the method,” Upadhyay mentioned.
The method was easy however time-consuming. “My employer was amassing particular person requests from completely different staff so it might take them up with LIC, which manages the superannuation fund, in a single go,” he mentioned.
Personal staff needed to observe following steps for the one-time switch. The very first requirement was an energetic NPS tier-1 account, which Upadhyay had. They then needed to attain out to the superannuation fund supervisor (LIC on this case) by way of the employer, requesting it to switch the funds to the NPS account.
The superannuation fund supervisor would then subject a cheque or draft within the identify of the purpose of presence (PoP) related to the employer, with the Everlasting Retirement Account Quantity (PRAN) of the worker talked about. POPs are PFRDA-appointed entities that present NPS providers to subscribers. PRAN is a 12-digit quantity assigned to people enrolled in NPS.
Additionally learn | Schengen, US visas: How to crack the application process, plan a smooth holiday
It could additionally subject a letter to the employer or PoP, mentioning that the quantity was being transferred from the superannuation fund to the NPS tier-1 account. Lastly, the PoP would gather the quantity and switch it to the NPS account.
The PFRDA round learn, “As per provisions of the Earnings Tax Act, 1961, the quantity so transferred from recognised provident fund/superannuation fund to NPS will not be handled as earnings of the present yr and therefore not taxable. Additional, the transferred recognised provident fund/superannuation fund is not going to be handled as contribution of the present yr by worker/employer and accordingly the subscriber wouldn’t make earnings tax declare of contribution for this transferred quantity.”
Nevertheless, since Upadhyay had moved on to a brand new job, two POPs have been concerned. “My first employer solely knew how one can proceed with the POP related to it. The second employer had a unique POP. Each of my employers supported me and the cheque lastly arrived within the identify of the POP of my second employer. They deposited it in my NPS account,” he mentioned.
All people wins
Although cash had been transferred, Upadhyay nonetheless can’t entry it. “Now, NPS guidelines will apply to my funds. If I withdraw it now, 20% will probably be tax-free whereas the remaining will probably be transformed into an annuity. But when I maintain it to retirement, 60% of the funds might be withdrawn tax-free. That was not the case with the superannuation fund. Furthermore, I presume returns will probably be higher with NPS than with the superannuation fund,” he mentioned.
Sumit Shukla, managing director and CEO, Axis Pension Fund, mentioned, “Transferring a superannuation fund to NPS is a win-win for workers and employers because the latter will not need to handle a separate belief and incur administration prices, whereas the previous will get funding decisions underneath NPS with higher returns and options.”
To make certain, the 2017 price range announcement for one-time transfers applies to the Worker Provident Fund (EPF), too, however not like PFRDA, the EPFO is but to outline a course of for it.
Additionally learn: Not many claim mental healthcare insurance. Here’s why
