Pension Corpus fund - Whether Taxable ?
Parthasarathi Loganathan
(Querist) 17 December 2010
This query is : Resolved
Recently, consequent to option for pension by Bank Employees, arrears was computed on account of wage revision effective from Nov 2007. However, employees who have opted for pension were asked to contribute to Pension Fund to meet the shortfall of Rs.1800 crores. Hence,only 15-20% of Net arrears were paid to the employees after deduction of the pension corpus fund. However, employees are taxed to the extent of gross arrears. Whether, the arrears is taxable for the gross arrears or the net arrears? Is there any law or Regulatory guidelines to elaborate this point? Though the pension fund contributed by the employee to the Government's shortfall, is it correct on the part of Government to deduct/pay tax on arrears amount. Please elucidate. Lakhs of Bank employees/officers are affected.
Parthasarathi Loganathan
(Querist) 18 December 2010
The simple issue is why should the employees shoulder tax burden for the funds contributed to meet out the shortfall in the pension corpus. In other words, is it fair on the part of the Government (which is protected to extract money in the name of taxes) to impose double burden for a single issue? Will it not set bad precedents for the future? Will it ever happened to any Government employees in the past by shelling out money from their hard earned salary to meet out the Exchequer at a time it is swindled to the tune of Rs.173000 crores of our country's legitimate money?
R.Ramachandran
(Expert) 18 December 2010
Dear Mr. Partha,
Normally, the pension corpus of any Pension Scheme, gets funds from the pension contribution being made by the employees month after month.I don't know under what circumstances you were asked to contribute to the Pension Corpus. Therefore, While your normal monthly pension contribution would qualify for tax exemption (of course subject to the ceiling of Rs. 1 lakh under Sec. 80C), I do not think that there could have been any compulsion for parting with say about 75% of your arrears towards 'Pension Corpus'. In any case, there could not have been any government directive for such fund collection. Yes, there could have been peer pressure.
Parthasarathi Loganathan
(Querist) 18 December 2010
To brief up, there were a second option given to employees who had earlier opted PF instead of Pension. After more than 15 years of struggle, this pension scheme was extended to PF optees. When the actuaries were worked out, the Government has found a notional shortfall of Rs.1800 crores in the pension fund. Based on which, Trade Unions vide their recent Bipartite settlement has contributed 2.80 times of their basis pay as on Nov 2007 towards pension corpus. This was recovered immediately when the arrears was paid to bank employees. However, to add insult to injury this portion was subject to Income Tax as it was treated as income during the period. Is it not a double burden for the sincere contribution of employees to meet out the shortfall in the corpus? That is the big issue now.
