Deloitte Insights

Tax Incentives for Savings Adjusting for changes in work-life

Deloitte Tax Policy Paper 1

Employment trends indicate that during their working life, individuals will increasingly have multiple jobs interspersed with periods of selfemployment and voluntary or involuntary separation from the job market. Life expectancy beyond working life is also on the rise in India. So the goal of public policy should be to promote tax-sheltered savings instruments that are flexibly tailored to the new working life and to take care of life after retirement.

The major financial instruments available in India for such long-term savings are the Employees Provident Fund (EPF) for employees in the non-government, formal sector. For government employees, it is the National Pension Scheme (NPS) Tier I Account. Both schemes envisage contributions from employer and employee and have significant tax incentives attached to them. However, these schemes (and the associated tax incentives) do not fully address the savings needs of individuals who are self-employed or who may be temporarily out of the workforce.

The National Pension Scheme (NPS) Tier II account run by the Pension Fund Regulatory and Development Authority (PFRDA) under a statutory law along with its attendant ecosystem of a single identifier and cross-country service providers, could be an ideal instrument for long-term savings for all individuals specially those who may not be part of the organized workforce. We suggest a Tax Exempt Exempt (TEE) mode with modified withdrawal norms for a revamped NPS Modified Tier II Account which would help address the savings profile of the workforce of the 21st century.

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