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Sunday, December 27, 2009

PSE officers flay taxing of perks

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Confederation says retrospective effect is bad in law

The National Confederation of Officers’ Associations, a national forum of executives of public sector enterprises (PSE), has criticised the addition of perks given to employees in the computation of personal income tax, as notified by the Central Board of Direct Taxes recently.

In a press release here on Saturday, Baby Thomas, president of the confederation, said the new rule was given retrospective effect from April 1. This was bad in law.

The notification said an employee living in a city having a population exceeding 25 lakh as enumerated by the 2001 census have to pay 15 per cent of his or her salary as rent recovery if the accommodation was provided by the employer. If it was less than 15 per cent, the difference was treated as perk and added to the employee’s salary for taxation.

“The valuation of perk is based on the salary of the employee and not based on the accommodation provided and the market rent of the accommodation. There is wide variation in the type of accommodation provided by different employers. As such, the principle adopted for valuation of perk is wrong,” Mr. Thomas said.

Many employees are not provided accommodation of the scale for which they were eligible. “The irony is that for these employees who have to be content with an inferior accommodation, the valuation of perk is made as though they are provided the accommodation for which they are eligible,” he said.

The valuation of perk should be based on the locality and the type of accommodation provided and not on the salary alone. In many cases, the rent recovery was even more than the market rent as these houses were old, ill-maintained and located in remote areas. The employees not provided accommodation were expected to pay 10 per cent of the basic pay as rent, in addition to the house rent allowance, to get tax exemption on the latter. For accommodation provided by the employer, the employees had to pay 15 per cent of the salary as rent recovery. The salary included allowances, perks and performance-linked payments. “This is gross discrimination,” Mr. Thomas alleged.

Many employees would now like to vacate the quarters provided and opt of private accommodation and draw the house rent allowance.

He demanded that the Central PSE employees should be treated on a par with Central government employees and the system of licence fee should be followed for rent recovery and valuation of perks.

On the taxation of perks on conveyance reimbursement, he said that even senior executives in Central PSE were not provided cars under the guidelines issued by the government.

Pension regulator hardsells new scheme

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The Pension Fund Regulatory Development Authority (PFRDA) is taking ing various measures to increase the number of subscribers under its New Pension Scheme (NPS). It is in discussions with the General Insurance Council, various industry bodies and companies to offer the plan to their employees. Under the recent deal between the Indian Banks’ Association (IBA) and the pension regulator, all new recruits of banks will join the defined contribution system from April 1, 2010. Already 20 nationalised and 12 private sector banks have joined the new system.National Aluminium Co (Nalco) was the first public sector entity to join NPS. While 24 per cent of Nalco employees’ salary will go towards Employees Provident Fund, 6 per cent will be invested in NPS. PFRDA has written to the department of public enterprises to enable all central public sector undertakings (PSUs) to bring their 1.5 million workers into the NPS fold. Sources said BHEL, NTPC and DVC are next in line to join NPS.

Currently, the scheme has 6.7 lakh subscribers, of which close to 3,000 investors are from the unorganised sector. It has Rs 3,500 crore as assets under management from these subscribers, of which the contribution of the unorganised sector is at Rs 5 crore.

The pension regulator may also provide online application facility from next year. “We are trying to make it available on the central record-keeping agency’s website, where investors can log in and make contributions,” said a PFRDA official.

In yet another move, post offices will now be able to sell NPS. Recently the Department of Posts was given recognition as one of the points of presence (PoPs).

PFRDA will soon invite bids from other agencies for record-keeping. Currently, National Securities Depository (NSDL) is the central record-keeping agency and charges Rs 470 per account. Inspite of keeping other charges such as fund management and PoP quite low, the present CRA charges are quite high, a reason why the regulator seeks to bring competition and reduce costs.

SBI Pension Fund, one of the fund managers under NPS posted the highest net asset value (NAV), followed by UTI Retirement Solutions and LIC Pension Fund. PFRDA had asked the pension fund managers to disclose NAVs on a daily basis from December 1 this year. Of the total Rs 3,700 crore corpus under NPS for government employees, SBI PF manages around Rs 1,700 crore. At present, the allocation of funds among the three fund managers is decided by PFRDA.

However, this may change once the PFRDA Bill gets passed in Parliament after which each government employee will have the option of selecting his own pension fund manager.

PFRDA is also launching a small-ticket pension scheme called CRA Lite. The new scheme is mainly aimed at helping self-help groups invest their money in NPS. Under CRA Lite, the minimum annual investment limit would be Rs 2,000, which is lower than the Rs 6,000 per annum for the unorganised sector. The annual record-keeping charges have been brought down to Rs 65-70 for CRA Lite.

It recently introduced a savings account — Tier-II account— where investors can enter and exit at will. The account will be available only to those who have subscribed to Tier-I, which an investor cannot exit till the age of 60.



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