Budget Amendments impacting employee Retirement Plans
- On the 1st of February, 2020, Ms. Nirmala Sitharaman, Finance Minister of India presented the annual Finance Bill (Budget) for the financial year starting 1 April 2020 to 31 March 2021.
- Amongst the various proposals impacting personal Income Tax, there was one important proposal which impacts the taxation on contributions to employer sponsored Retirement plans.
- The proposal states that aggregate employer contributions in excess of INR 750,000 per annum made by the employer to the schemes below will be considered as income in the hands of the employee and subject to income/perquisite tax. The schemes covered within this proposal are:
- Provident Fund
- The National Pension Scheme (NPS) (or referred to in sub-section (1) of section 80CCD)
- Approved Superannuation Fund
- Additionally, the annual accretion by way of interest/returns on such taxable contributions will also be subject to tax.
- The above proposal adversely impacts employees, particularly high earners whose existing contributions exceed the threshold of INR 750,000 per annum in total towards these schemes.
- The government is of the view that currently high earners are able to save significant taxes by investing in all the employer sponsored tax-free options, whereas low earners do not have sufficient salary savings to take advantage of such tax benefits. Therefore as per the Government, introducing a tax on excess contributions above INR 750,000 per annum is equitable and justified.
The article above discusses the impact of the above proposal in detail including Aon’s Point of View.
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