The interim pension regulator has sought tax relief on investments in the New Pension Scheme (NPS) to make it more attractive to employees of private sector firms.

The Pension Fund Regulatory and Development Authority (PFRDA) has written to the finance ministry seeking level playing field for NPS with other long-term savings schemes that will get tax benefits under the proposed Direct Taxes Code. All we want is equal treatment, a PFRDA official said.

NPS is currently under the Exempt-Exempt-Tax system, which means investment will be taxed when it is withdrawn. Provident fund and many of the small savings schemes are under the Exempt-Exempt-Exempt (EEE) regime, and are not taxed at any point.

If the finance ministry plans to continue with the EEE regime for long-term saving schemes, we want the NPS also to get the same treatment, the official said, requesting anonymity. Several multinational companies are talking to us. We need more clarity on the tax treatment, he said.

The pension regulator has, in its letter to the central board of direct taxes (CBDT), said tax benefits will make the scheme more attractive and will help increase its share.

While a few public sector units such as Nalco and Damodar Valley Corporation have already transferred a portion of their superannuation funds to the NPS, many private sector companies and public sector banks are also exploring the option as it would rid them of the headache of administering and managing the funds.

This would be a good step. It would allow private companies to move their superannuation funds to the NPS, said Amit Gopal, vice-president of pension consultant India Life Capital.

The PFRDA has further requested for an additional window under Section 80C of the Income Tax Act for contributions by subscribers employers.

Investments in specified schemes up to Rs 1 lakh are exempt under Section 80 C of the Income Tax Act. The budget for this year has given an additional exemption of Rs 20,000 for investments in infrastructure schemes.

Under Indian laws, companies with over 100 employees have to contribute 12% of an employees salary to the provident fund with an equal contribution from the employer.

The NPS, a defined contribution superannuation scheme for government employees, was thrown open to the private sector in May last year. The scheme offers subscribers the flexibility to decide their investment portfolio as well as choose between fund managers.

With weighted returns of over 12% annually, NPS is expected to be the ideal long-term saving instrument for workers in the unorganised sector. Its low fund management fees of 0.009% make it attractive.

The scheme, however, has managed only 6,500 private subscribers, partly because it does not enjoy some tax benefits given to private provident fund and private super annuation funds.