Exemption of income of New Pension Scheme Trust [Section 10(44)]

Section 10(44) of the Income Tax Act, 1961 provides for exemption from income tax in India in respect of any income received by or on behalf of the New Pension System Trust (NPST), established on 27 February 2008.

The New Pension System Trust is a public trust established by the Government of India to manage the New Pension System (NPS), a retirement savings scheme for government employees. The NPS is also open to private sector employees and self-employed individuals.

The exemption under Section 10(44) is intended to promote the NPS and to encourage people to save for retirement. It is also intended to help the New Pension System Trust to achieve its objectives.

The exemption under Section 10(44) is available to all income of the NPST, including:

• Income from contributions made by subscribers to the NPS.
• Income from the investment of the NPS corpus.
• Income from any other source.

The exemption under Section 10(44) is available for the entire income of the New Pension Scheme Trust, including both the principal and the interest.

Exemption under Section 10(44)

Section 10(44) of the Income Tax Act was introduced in 2015 to provide an exemption to the income of the NPS Trust. This exemption ensures that the funds accumulated in the NPS Trust are not subject to tax, allowing for the growth of the pension corpus.

The NPS Trust is responsible for managing the contributions made by employees and employers towards the NPS. These contributions are invested in various financial instruments such as government securities, corporate bonds, and equities, with the aim of generating returns for the pension fund.

By exempting the income of the NPS Trust, the government aims to encourage more individuals to participate in the NPS and secure their retirement. The tax exemption also ensures that the funds accumulated in the NPS Trust are not eroded by taxes, thereby maximizing the benefits for the pensioners.

Here is an example of a case where the exemption under Section 10(44) will be available:

• The New Pension Scheme Trust receives ₹100 crore as contributions from its subscribers. The Trust invests the ₹100 crore in a variety of asset classes, and it earns an income of ₹10 crore from its investments. The Trust will not have to pay any income tax on the ₹10 crore that it earns as income from its investments.
• Interest income from investments in government bonds and securities.
• Dividend income from investments in equity shares.
• Rental income from properties owned by the NPST.
• Fees earned from providing services to subscribers, such as account administration fees and investment management fees.

It is important to note that the exemption under Section 10(44) is available only to the New Pension Scheme Trust. The income that the subscribers of the NPS earn from their investments is taxable.

Benefits of the Exemption

The exemption of income of the NPS Trust under Section 10(44) has several benefits:

Encourages participation:

The tax exemption makes the NPS an attractive option for individuals planning for their retirement. It encourages more people to participate in the scheme and secure their financial future.

Maximizes returns:

By exempting the income of the NPS Trust, the government ensures that the funds accumulated in the trust are not eroded by taxes. This allows for the maximum growth of the pension corpus, resulting in higher returns for the pensioners.

It allows the NPST to invest its income in a variety of assets without having to worry about paying taxes on the investment income.

It helps to reduce the costs of the NPS for subscribers.

It makes the NPS more attractive to subscribers and investors.

Long-term savings:

The NPS is designed to be a long-term savings vehicle for retirement. The tax exemption on the income of the NPS Trust further incentivizes individuals to contribute towards the scheme and build a substantial corpus over time.

Conclusion

The exemption of income of the NPS Trust under Section 10(44) is a significant provision that promotes the growth of the NPS and encourages individuals to plan for their retirement. By providing tax benefits, the government aims to ensure the financial security of pensioners and promote a culture of long-term savings. The NPS has emerged as a popular pension scheme in India, and the tax exemption plays a crucial role in its success.