Photographer: Hindustan Times via Getty Images

India Said to Weigh Tax Breaks to Boost $15 Billion Pension Fund

  • Modi may exempt final pension withdrawals from tax payments
  • Move likely to be announced in the annual budget next month

India is considering giving tax breaks on final withdrawals from its $15 billion national pension fund as Prime Minister Narendra Modi looks to boost savings from a decade low.

The move would impact more than 10 million Indians covered by the National Pension System, which includes certain government workers and private employees. The administration is also considering extending by a year subsidies on premiums under a pension plan for unorganized workers, said two officials familiar with the matter, asking not to be identified as the discussions are private.

Modi is pushing to provide a safety net for more than 90 percent of Indians employed in occupations such as weaving, farming and pickling who don’t receive a regular wage. Making the national pension withdrawals tax-free would make them as lucrative as retirement programs, such as provident funds, that are offered to salaried employees.

Promising higher returns could also boost the fund’s 1 trillion rupee size, offering Modi more cash to spend on projects like roads, bridges and ports that need longer term financial backing.

The government will probably announce the move when it presents its annual budget next month, the officials said. Finance Ministry spokesman D.S. Malik declined to comment.

India’s savings rate was 30.6 percent of gross domestic product at the end of March 2014, compared with the 35 percent HSBC Holdings Plc said is needed to fulfill the nation’s economic potential. China has a 50 percent rate and most big Asian economies have kept it above 30 percent for decades, World Bank data show.

Pension funds offer a good opportunity to boost the rate, given that 90 percent of Indians are below the retirement age of 59. The total size of retirement funds under management in India is set to climb more than five-fold to 83.4 trillion rupees by 2025, Ernst & Young LLP estimated in 2013.

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