All you wanted to know about the New Pension System (NPS)

New Pension Scheme

FAQs

What is the New Pension Scheme (NPS)?
New Pension scheme is a retirement planning instrument and a system of fund management like the Employees Provided Fund (EPF), Public Provided Fund (PPF).
It is based on defined contributions
It is voluntary for private sector employees but mandatory for new recruits to the Central Government Service (Except armed forces).

Who is it for?
It is applicable for salaried employee (both public sector and private sector) within the age group of 18 to 55. you need to compulsorily withdraw from the system on or before the attainment the age of 70.

Who is the regulator for this scheme?
The Pension Fund Regulatory and Development Authority(PFRDA) has been assigned the work of protecting the interest of the people participating in the NPS. It’s a Government regulatory body of India

What is PRAN?
Permanent Retirement Account Number (PRAN) is like an account number which will help you check your funds online or at the point of presence (Pops). It is allotted at the time of entering the scheme.

How much should I invest?
For government employees, the monthly contribution is 10 percent of the salary and DA to be paid by the employee and matched by the Central Government. However, there will be no contribution from the Government in respect of individuals who are not Government employees.

Minimum amount per contribution RS 500
Minimum annual contribution Rs 6000
Minimum number of contributions 4 per year

A default charge of Rs 100/ year would be charged if you are unable to pay the installments and the minimum amount of Rs 6000/year. The account will then become dormant and can be renewed on request after paying the charges and the contribution of Rs 6000.

How do I get started?
PRAN gives you access to two accounts
Tier I – you contribute your savings for retirement in this non-withdrawal account. Operational w.e.f. 1-May-09
Tier II – voluntary savings facility. Date of operation to be announced.

You can approach any one of 17 banks like SBI, ICICI, IDBI, Axis, LIC, Kotak Mahindra and many more through the 285 point of presence (PoPs) in India to register and get a Permanent Retirement Account Number(PRAN). You have the option of shifting your PoPs.
You can choose only Pension Fund Manager at any point of time.

Where does the fund invest my money?
NPS offers a choice of 6 fund managers and 3 investment options to choose from.
If you do not want to make a choice, your money will be invested in “Auto choice” option.
The three choices of investment are:
Class E - High Return High Risk – investments in predominantly equity market instruments (Maximum 50%)
Class C - Medium Return Medium Risk – investments in predominantly fixed income bearing instruments
Class G - Low Return Low Risk - investments in purely fixed income bearing instruments

Auto choice option
Till 36 years of age,
50% in class E (high risk, high return equity class)
20% in class C (medium return medium risk)
30% into debt instruments.

After 36 years of age the % of funds invested in class E and C comes down annually
While attaining 55 years of age
10% in Class E
10% in Class C
80% in Class G
No guarantee on investment returns. The choice of option can be changed later starting April 2010.


What is the withdrawal option?
The contributions and returns thereon would be deposited in a non-withdrawable pension account. The existing provisions of defined benefit pension and GPF would not be available to the new recruits in the central Government service.

In addition to the above pension account, each individual can have a voluntary tier-II withdrawable account at his option. Government will make no contribution into this account. These assets would be managed in the same manner as the pension. The accumulations in this account can be withdrawn anytime without assigning any reason.

What is the exit option?
Normally, individuals can exit at or after the age of 60. At exit, at least 40 percent of pension wealth is to be invested to purchase an annuity. The individual would receive a lump-sum of the remaining pension wealth, which she would be free to utilize in any manner.

If you exit the NPS before attaining the age of 60 years, you will be entitled to get 20% of the funds you have invested and the rest has to be invested in annuities in the insurance companies. An annuity will help you to get a steady income the rest of your life. If the subscriber dies, then the nominee will get the whole amount as a lump.

You can exit the new pension scheme anytime you decide to do so. And in case of death the amount in the subscribers account will be transferred to the nominee.

What does the Income Tax Act say about NPS?
Budget 2009 proposals,
- Any income received by any person shall be exempt from income tax u/s 10(44)
- Any dividend paid to the NPS Trust shall be exempt from Dividend Distribution Tax u/s 115-O
- All purchases and sales of equity and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax
- NPS Trust shall receive all income without any tax deducted at source u/s 197A
- NPS now has been extended also to “self-employed” u/s 80CCD (1). It is proposed that the amount received by an assessee from NPS shall not be taxed, if such amount is used for purchasing an annuity plan in the same year
- Amount taxed under Exempt-Exempt-Tax scheme. That is, withdrawals are taxed.

Source:
www.pfrda.org.in
www.livesharemarkets.com

Airport charges, Ryanair reducing Stansted flights

Big news yesterday was Ryanair announcing that they will reduce their flights from Stansted by 40% because of the various charges that make it much less attractive for them to operate from there. Instead, they apparently want to focus their efforts on overseas traffic where their business model is better suited, or rather, where airports and governments suit their business model better.

I am no great fan of Ryanair, but I do use them frequently, so I guess I am a good customer at least, and I have a lot of sympathy in this instance with their arguments. Flight taxes in the UK are much higher, but also airports charge very high fees to both customers and airlines.

I could rant all day about the ludicrous parking fees at Stansted and other London airports, but everyone knows from their own experience already. I could also rant about the apparently incompetent management that has taken a year to get a payment booth operating from when the 'open shortly' sign appeared, that redesigned the car parks to make them as irritating as possible, that can't operate security with anything remotely resembling competence, but you get the point.

Although it wouldn't help taxes, introducing competition at airports would certainly help abuses of customers and airlines. Runways are in short supply, but there is no reason why terminals couldn't be in competition. If BAA was forced to sell parts of its airports rather than entire airports, then different companies could operate alongside. It would even be possible to organise it so that a flight could accept passengers from either terminal, so that true choice would exist. I would be able to choose to pay high car park fees, take ages in security, and have end to end frustration, or to go to a different terminal run by a good company, where the end to end experience is both pleasant and cost effective. In such a competitive market, standards would inevitably improve.

It is so obvious that this is possible to organise, that it really begs the question why BAA was given local monopolies in the first place. Living where we do, of course there is only one international airport close by. I use the further away ones not by choice, but only when there is no suitable flight locally. That is not true competition, it is just a local monopoly system just like rail travel and it simply doesn't work as a good business model for private competitive enterprise. It encourages bad management, poor customer service, and eventually wholesale monopolistic abuse of the customer.

If Stansted can still manage to win its expansion debate, then it should be forced to open a new terminal operated by a different company, with its own car parks, and its own charging. Regulators should ensure that a simple cartel doesn't operate where both termianls agree to ignore customer interests to both get rich quick. Then we can move on.

By firing a shot over the bows, Ryanair has highlighted the high fees, and Stansted arrogantly dismissed it as unimportant in spite of the high fraction of flights that Ryanair represents. This shows that the existing management is both managerially incompetent and determined to continue its ripoff strategy. Regulators have a responsibility to ensure that the customer's interests are protected. So far they have failed in that role, but expansion would be a perfect opportunity to take control, and to break up the airport monopolies that have been so badly abused.

Limited Liability Partnership (LLP)

The Limited Liability Partnership (LLP) Bill 2008 was passed by the Parliament on December 12, 2008 and legislated vide notification of the Act in the Gazette of India on January 7, 2009.
Subsequently ‘The Limited Liability Partnership Rules, 2009’ were notified by the Central Government on April 01, 2009.

Key features of the LLP Act are as below:
– An LLP Is a separate legal entity under the Limited Liability Partnership Act, 2008 and can sue and be sued.
– An LLP has a perpetual succession and partners may come and go
- The LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.
– Foreign Nationals can be a Partner in an LLP.
– The liability of partners is limited to the extent of their contribution, except in case of intentional fraud or wrongful act of omission or commission by the partner.

In essence LLP combines the advantages of both the Company and Partnership into a single form of organization. While one partner is not responsible or liable for another partner’s misconduct or negligence, in an LLP, all partners have a form of limited liability for each individual’s protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly.

A “designated partner” is responsible for all acts, matters and things to be done by the LLP including compliances, report filing etc. and shall be liable for all penalties imposed on the LLP for violation of provisions of law.

- Minimum 2 designated partners (individuals, with at least 1 being resident in India) with the option of having Corporate as partners.
- An existing Firm, private company and unlisted public company can be formed into an LLP.
- A partner may give loan to the LLP and be treated as a creditor in respect of such loan
- Every partner may take part in the management of the LLP
- In the absence of any agreement, no partner shall be entitled to remuneration for acting in the business/management of the LLP
- In the absence of any agreement, no person may be introduced as a partner without the consent of all other partners.
- No majority of partners can expel any partner unless the power to do so has been conferred by express agreement between the partners

Internationally, LLPs are allowed to act as auditors. However, it is yet to be seen if they are allowed in India as the Chartered Accountants Act and the Institute of Chartered Accountants of India (ICAI) explicitly mentions that only individuals and firms are allowed to act as auditors. Since companies cannot act as auditors and companies can become members of LLPs, the ICAI will have to allow LLPs to function as auditors.

Taxation: The Finance Bill 2009 provided that LLPs will treated at par with Partnership firms in respect of taxation. LLP will be taxed at entity level and income of partners of LLP will be exempt from tax.

Click to download: LIMITED LIABILITY PARTNERSHIP ACT, 2008 (INDIA)

Budget Glossary

The Budget Glossary.
On the way to the Budget which is expected to one of the biggest in Indian History, let us take a look at what some of the terms and jargons means.

An Article from the Economic Times

BALANCE SHEET - The lines and figures that reveal the receipts and expenditure of the year

ANNUAL FINANCIAL STATEMENT This is the last word on the state’s receipts and expenditure for the financial year, presented to the Parliament by the government. Divided into three parts — Consolidated Fund, Contingency Fund and Public Account — it has a statement of receipts and expenditure of each. Expenditure from the Consolidated Fund and Contingency Fund requires the mandatory nod of the Parliament.

CONSOLIDATED FUND - The government’s lifeline: it is a consortium of all revenues, money borrowed and receipts from loans it has given. All state expenditure is made from this fund.

CONTINGENCY FUND - As the name suggests, any urgent or unforeseen expenditure is met from this Rs 500-crore fund, which is at the disposal of the President. The amount withdrawn is returned from the Consolidated Fund.

PUBLIC ACCOUNT - When it comes to this account, the government’s nothing more than a banker, as this fund is a collection of deposits, like public provident fund. REVENUE VS CAPITAL The budget has to distinguish between revenue receipts/expenditure from others. So all receipts in, say, the consolidated fund, are split into Revenue Budget (revenue account) and Capital Budget (capital account), which includes non-revenue receipts and expenditure.

REVENUE RECEIPT/EXPENDITURE - All receipts like taxes and expenditure like salaries, subsidies and interest payments that in general do not entail sale or creation of assets fall under the revenue account.

CAPITAL RECEIPT/EXPENDITURE - Capital account shows all receipts from liquidating (eg. selling shares in a public sector company) assets and spending to create assets (lending to receive interest).

REVENUE/CAPITAL BUDGET - The government has to prepare a Revenue Budget (detailing revenue receipts and revenue expenditure) and a Capital Budget (capital receipts and capital expenditure).

CREATING A HOLE IN THE POCKET

Taxes come in various shapes and sizes, but primarily fit into two little slots:

DIRECT TAX - This is the tax that you, I (and India Inc) directly pay the government for our income and wealth. So income tax, FBT, STT and BCTT are all direct taxes.

INDIRECT TAX - This one’s a double whammy: It’s essentially a tax on our expenditure, and includes customs, excise and service tax. It’s not just you who thinks this isn’t fair - governments too consider this tax "re-gressive", as it doesn’t check whether you’re rich or poor. You spend, you pay. That’s precisely why most governments aim to raise more through direct taxes. MAKING YOU PAY The various taxes that the government has to levy

CORPORATION (CORPORATE) TAX - It’s the tax that India Inc pays on its profits.

TAXES ON INCOME OTHER THAN CORPORATION TAX - It’s income-tax paid by ‘non-corporate assessees’ — people like us.

FRINGE BENEFIT TAX (FBT) - No free lunches here. If you want the jam with the bread and butter, you’d better pay for it. In the 2005-06 Budget, the government decided to tax all perks — what is calls the ‘fringe benefit’ — given to employees. No longer could companies get away with saying ‘ordinary business expenses’ and escape tax when they actually gave out club memberships to their employees. Employers have to now pay a tax (FBT) on a percentage of the expense incurred on such perquisites.

SECURITIES TRANSACTION TAX (STT) - If you’re dealing in shares or mutual funds , you have to loosen those purse strings a wee bit too. STT is a small tax you need to pay on the total amount you pay or receive in a share deal. In the 2004-05 Budget, the government did away with the tax on profits earned on the sale of shares held for over a year (known as long-term capital gains tax) and replaced it with STT.

CUSTOMS - Anything you bring home from across the seas comes with a price. By levying a tax on imports, the government’s firing on two fronts: it’s filling its coffers and protecting Indian industry.

UNION EXCISE DUTY - Made in India? Either way, there’s no escape. In other words, this is a duty imposed on goods manufactured in the country.

SERVICE TAX - If you text your friend a hundred times a day, or can’t do with-out the coiffeured look at the neighbourhood salon, your monthly bill will show up a little charge for the services you use. It is a tax on services rendered.

MINIMUM ALTERNATE TAX (MAT) - It’s known that a company pays tax on profits as per the Income-Tax Act. That just may not always be enough. If its tax liability is less than 10% of its profits, the company has to pay a minimum alternate tax of 10% of the book profits.

SURCHARGE - This is an extra bit of 10% individuals pays for earning more than Rs 10 lakh. Companies with a revenue of up to Rs 1 crore is spared this rod.

VAT AND GST - After a lot of discussion and brainstorming, the government levies what is called a ‘value-added tax’: a more transparent form of taxation. The tax is based on the difference between the value of the output and the value of the inputs used to produce it. The aim here is to tax a firm only for the value it adds to the manufacturing inputs, and not the entire input cost. Thus, VAT helps avoid a cascading of taxes as a product passes through different stages of production/value addition. A GST, or goods and services tax, on the other hand, contains the entire element of tax borne by a good — including a Central and a state-level tax. MORE REVENUE Of course, tax isn’t the only way governments make money. There’s also ‘nontax revenue’

NON-TAX REVENUE - Any loan given to state governments, public institutions, PSUs come with a price (interests) and forms the most important receipts under this head apart from dividends and profits received from PSUs. The government also earns from the various services including public services it provides. Of this only the Railways is a separate department, though all its receipts and expenditure are routed through the consolidated fund.

CAPITAL RECEIPTS - RECEIPTS in the capital account of the consolidated fund are grouped under three broad heads — public debt, recoveries of loans and advances, and miscellaneous receipts

PUBLIC DEBT - Don’t mistake the phrase. Public debt is not something incurred by the public. In Budget parlance the difference between borrowings (public debt receipts) and repayments (public debt disbursals) during the year is the net accretion to the public debt. Public debt can be split into two heads, internal debt (money borrowed within the country) and external debt (funds borrowed from non-Indian sources). The internal debt comprises of treasury Bills, market stabilisation scheme, ways and means advance, and securities against small savings.

TREASURY BILL (T-BILLS) - These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure. Bonds of longer maturity are called dated securities.

MARKET STABILISATION SCHEME (MSS) - The scheme was launched in April 2004 to strengthen Reserve Bank of India’s (RBI) ability to conduct exchange rate and monetary manage-ment. These securities are issued not to meet the government’s expenditure but to provide the RBI with a stock of securities with which to intervene in the market to manage liquidity.

WAYS AND MEANS ADVANCE (WMA) - RBI is the big daddy of banks being the banker for both the Central and State governments. Therefore, the RBI provides a breather to manage mismatches in their receipts and payments in the form of ways and means advances.

SECURITIES AGAINST SMALL SAVINGS - The government meets a small part of its loan requirement by appropriating small savings collection by issuing securities to the fund.

MISCELLANEOUS CAPITAL RECEIPTS: These are primarily receipts from disinvestment in public sector undertakings. The capital account receipts of the consolidated fund — public debt, recoveries of loans and advances, and miscellaneous receipts — and revenue receipts make up the total receipts of the consolidated fund.

EXPENDITURE Before we begin to examine the nitty gritty of where and how the government spends its money, we need to understand what’s called the Central Plan. This is what every child in the country learns about in school; only, we all know it better as the Five-Year Plan. A Central Plan is the government’s annual expenditure sheet, with a five-year roadmap. Here’s where the government gets the money for the grand five-year exercise: The funding of the Central Plan is split almost evenly between government support (from the Budget) and internal and extra-budgetary resources of stateowned enterprises. The government’s support to the Central Plan is called the Budget support.

PLAN EXPENDITURE - This is essentially the Budget support to the Central Plan. It also comprises the amount the Centre sets aside for plans of states and Union Territories. Like all Budget heads, this is also split into revenue and capital components.

NON-PLAN EXPENDITURE - All those bills the government has to pay, under the ‘revenue expenditure’ head are bunched up here: interest payments, subsidies, salaries, defence and pension. The ‘capital’ component, in comparison, is small; the largest chunk of this goes to defence. FISCAL When government’s expenditure exceeds its receipts it has to borrow to meet the shortfall. This deficit has material implication for the economy.

FISCAL DEFICIT - This is where the government feels the pinch. It often lives beyond its means, a lot like the situation mere mortals find themselves in. And then, the vicious circle is complete: it goes right back to the people for more money. Here’s how that works out: The government’s ‘non-borrowed receipts’ — revenue receipts plus loan repayments received by the government plus miscellaneous capital receipts, primarily disinvestment proceeds — fall short of its expenditure. The excess of total expenditure over total nonborrowed receipts is called ‘fiscal deficit’. The government then has to borrow money from the people to meet the shortfall.

REVENUE DEFICIT - It’s not just because it’s a deficit, but that it’s a revenue deficit makes it an important control indicator. All expenditure on revenue account should ideally be met from receipts on revenue account; the revenue deficit should be zero, else the government will be in debt.

PRIMARY DEFICIT - This is one ‘primary’ indicator everyone likes to watch: when it shrinks, it indicates we’re not doing too badly on fiscal health. The primary deficit is the fiscal deficit less interest payments the government makes on its earlier borrowings. It’s the basic deficit figure, if you will.

DEFICIT AND THE GDP - It’s important to see where all this fits, in the larger economic picture. The Budget document mentions deficit as a percentage of GDP. In absolute terms, the fiscal deficit may be large, but if it is small compared to the size of the economy, then it’s not such a bad thing after all. Prudent fiscal management requires that government does not borrow to consume, in the normal course.

Fiscal Responsibility and Budget Management Act (FRBM) ACT - Enacted in 2003, the Fiscal Responsibility and Budget Management Act required the elimination of revenue deficit by 2008-09. This means that from 2008-09, the government was to meet all its revenue expenditure from its revenue receipts. Any borrowing was to be done to meet capital expenditure — that is, repayment of loans, lending and fresh investment. The Act also mandates a 3% limit on the fiscal deficit after 2008-09 —one that allows the government to build capacities in the economy without compromising on fiscal stability. The financial crisis and the subsequent slowdown has forced the government to abandon the path of fiscal consolidation.

...AND THE REST
Some of the other important terms that figure in the Budget

BHARAT NIRMAN: Bharat Nirman is UPA’s unfulfilled dream of Build India, Build: irrigation, roads, water supply, housing, rural electrification and rural tele-com connectivity. Though it couldn’t meet the target of 2009, the government is still at it.

FINANCE BILL: This, all important sheaf of papers, is all about taxes and is presented in time before the levy breaks.

FINANCIAL INCLUSION: This is to ensure that everyone has a bank account and financial institutions are accountable. It sees to it the common denizen is not denied of timely and cheap credit and, more importantly, not intimidated by the facade of a modern bank. However, it has not fully got past the counter.

PASS-THROUGH STATUS: Nothing can be more dreadful than having to pay twice for the same thing. This position is accorded to those investments which stands the danger of being taxed twice like mutual funds. SUBVENTION: This is how a government bears the loss that financial institutions incur when asked to give farmers loans below the market rates.

RESOURCES TRANSFERRED TO THE STATES As we saw earlier, the Centre gives states a helping hand in two ways — a part of its gross tax collections goes to state governments. In the Budget 2007-08, for instance, the states were to receive nearly Rs 3.3 lakh crore of gross tax collections. The Centre also transfers funds to states to support their plans. These are largely in the nature of grants, and include those given to states for managing Centrally-sponsored schemes.

Source: The Economic Times, Kolkata Edition, 3-July-2009