The Centre has decided not to tax the pension contribution and accumulation of the new government employees now, but tax them at prevailing rate at the time of withdrawal of funds upon retirement.
"The revenue department is working on the details and a separate income tax directive would be issued shortly," joint secretary (capital markets) U K Sinha told a public accounts officers conference in New Delhi on Monday.
He said the government had decided to follow the EET method -- exempting the pension wealth at the contribution and accumulation stages and taxing it at the withdrawal stage.
The tax rate on pension income would be the prevailing rate when the withdrawal is made after retirement.
Since the new scheme, which became effective from January, was a "defined contribution scheme" it would exclude the family pension system in the event of the death of the employee as prevalent now.
Asserting that the GPF would not be applicable to the new recruits, Sinha said: "Instead of paying afterwards, the government is paying upfront."
The new pension system envisages 10 per cent contribution from employees and a matching contribution from the government.
The government launched the new pension scheme in the wake of rising pension liability, now at Rs 23,000 crore (Rs 230 billion) per annum from Rs 4,500 crore (Rs 45 billion) in 1993-94.
"The burden on exchequer is rising because of the changing demographic profile. For every 100 employees, there is about 85 pensioners. It is going to increase further," Sinha said, pointing to the central and state governments' difficulty in footing the pension bill.
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