Hike in employer's contribution to NPS is good news for salaried but this tax deduction is still missing This is a good news for the salaried individuals. However, one important NPS deduction for salaried individual is still missing under the new tax regime
The National Pension System (NPS) is a voluntary defined contribution scheme specifically designed to offer individuals with pension during their retirement years. NPS was introduced for government employees on January 1, 2004, and was made available to employees in the private sector from 2009.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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While government employees are required to contribute to NPS, it is voluntary for those in the private sector. The NPS is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013.
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Hike in deduction on employer's contribution to NPS
Over the past decade, there has been a gradual increase in the number of employees in the private sector who have subscribed to NPS under the 'corporate plan', which is facilitated by their employer. The tax provisions related to employer/employee contributions to NPS and withdrawal from NPS have undergone changes over this period of time. Broadly, subject to certain conditions, contributing to NPS provides employees with certain tax benefits at the time of contribution, during the period of employment and finally at the time of retirement.With an objective of improving social security benefit for employees in private sector, the Union Budget 2024 has proposed an increase in the threshold for employer's contribution to NPS and tax deduction available to employers / employees towards the same. Before the budget announcement, the central and state government employees were eligible to get a deduction on NPS contributions up to 14% of salary. The Union Budget 2024 has proposed to increase the threshold for private sector employees' contribution from 10 to 14 percent of their salary.
However, the eligibility for higher contribution would be applicable only for those individuals who opt for the new tax regime as the rate of employer's contribution to NPS for employees opting for the old tax regime is retained at 10% of the salary.
Additionally, it is important to note that, an individual, whether employed or not, can claim additional deduction of up to Rs 50,000 on the self-contribution towards NPS under the old tax regime, while the said benefit is not available under the new tax regime.
The table below provides a comparison of benefit available on NPS pre- and post-budget announcement:
Particulars
Old regime
New Regime
Pre-Budget
Post-Budget
Pre-Budget
Post-Budget
Employer’s Contribution to NPS
Up to 10% of salary
No change
Up to 10% of salary
Up to 14% of salary
Employee’s Contribution to NPS
50,000
No change
Nil
No change
Announcement of NPS Vatsalya scheme
A new scheme called ‘NPS Vatsalya’ was also announced in Budget 2024. This scheme proposes to allow parents and guardians to contribute to an NPS account on behalf of minors. When the minor reaches the age of majority, the account can be converted into a regular NPS account. The scheme details are awaited which is expected to clarify on aspects related to manner of contribution, tax deductions/ exemptions for such contribution by parents and/ or guardians, etc. This proposal aims to encourage savings towards pension plans and create a social security net for the younger generation coming into the workforce.Based on the recent developments, it is anticipated that the number of NPS subscribers in the private sector will likely grow in the upcoming years. This presents a mutually beneficial situation where personal savings during employment contribute to national development, while also establishing a social security net for individuals after retirement.
To further encourage the adoption of NPS by non-government employees and other individuals, the government may consider extending the deduction of Rs 50,000 for employee’s contribution, which is currently provided under the old tax regime, for individuals opting for new tax regime.
(The article is written by Akhil Chandna, Partner and Ankur Agrawal, Director at Grant Thornton Bharat LLP.)
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This story originally appeared on: India Times - Author:Faqs of Insurances
