The Hindu Business Line : Restore parity in taxation under new pension scheme

Contribution to the new pension scheme is tax deductible under Section 80CCD of the Income Tax Act wherein employee’s and employer’s contribution up to 10 per cent of the salary is deductible subject to a maximum of Rs 1 lakh. What is to b e observed is that this qualifying amount is the ceiling for deduction under Sections 80C, 80 CCC and 80 CCD.

Section 80 C allows deduction up to Rs 1 lakh for investments in life insurance, unit-linked insurance schemes, public provident fund, post office savings schemes, etc., as well as employees contribution to PFs.

Introducing Section 80 CCD has brought no additional benefits for employees who were saving up to Rs 1 lakh under Section 80 C; it is like putting money in one pocket and taking it out from the other.

The propensity to save under Section 80 C will decline, defeating the very purpose of this Section. Earlier employers’ contribution to Statutory PF (government employees) was exempt from income tax and recognised PF employers’ contribution was exempt up to 12 per cent of the employee’s salary.

What was not included in income is currently called a deduction and that is to be clubbed with other savings; it has no distinct entity. What you enjoy under Section 80 CCD is what you lose under Section 80C.

The Finance Minister and all policy-makers must ponder over this issue affecting new Central government employees.

What is the rationale: Employer’s contribution should not be included as part of income (as was done for statutory and recognised PF) and employees’ contribution may be included under Section 80 C.

Alternatively, a separate qualifying amount should be fixed for Section 80 CCD over and above the limit of Rs 1 lakh for Section 80 C.

This is not asking for any additional tax benefits but to logically restore parity in taxation under the new pension scheme.

Dr G. Simon Thattil,

University of Kerala

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