Union Budget 2025: NPS contributions of up to Rs 50,000 to the National Pension System (NPS) under Section 80CCD(1B) qualify for deductions only under the old tax regime, and this benefit is not available in the new regime

Union Budget 2025: Will Budget 2025 bring 50K NPS related deduction u/s 80CCD(1B) to the new tax regime?

The government intends to entice people to switch to the new tax regime, which has lower tax rates but far fewer exemptions or deductions. Currently, contributions of up to Rs 50,000 to the National Pension System (NPS) under Section 80CCD(1B) qualify for deductions only under the old tax regime, and this benefit is not available in the new regime.

Budget with ET

India looks to bring more women into workforce
A game changing budget to revive India’s backbone - agriculture
How would you plan India's Budget? Give it a try
According to experts, this makes it even more imperative that the new tax regime permit the tax benefit for NPS contributions up to Rs 50,000 under section 80CCD (1B). They say that it is hoped the Union Budget 2025 will include this crucial and essential exemption in addition to those offered under the new tax system. This might persuade more people to switch from the previous tax system to the new one, since NPS is gradually gaining traction as a tool for retirement planning.

Income tax benefits of NPS under both old and new tax regime for government and private sector employees

The new tax regime, which combines reduced tax rates with a very small number of deductions, is intended to entice people to switch.

In the 2024 Budget, the deduction for employer contributions to pension schemes under Section 80CCD (2) was increased from 10% to 14% of salary for private sector employers. The benefit of this modification is solely applicable to taxpayers who choose the new tax system under Section 115BAC.

Artificial Intelligence(AI)
Java Programming with ChatGPT: Learn using Generative AI
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Basics of Generative AI: Unveiling Tomorrows Innovations
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Generative AI for Dynamic Java Web Applications with ChatGPT
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Mastering C++ Fundamentals with Generative AI: A Hands-On
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Master in Python Language Quickly Using the ChatGPT Open AI
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Performance Marketing for eCommerce Brands
By - Zafer Mukeri, Founder- Inara Marketers
Office Productivity
Zero to Hero in Microsoft Excel: Complete Excel guide 2024
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
A2Z Of Money
By - elearnmarkets, Financial Education by StockEdge
Marketing
Modern Marketing Masterclass by Seth Godin
By - Seth Godin, Former dot com Business Executive and Best Selling Author
Astrology
Vastu Shastra Course
By - Sachenkumar Rai, Vastu Shashtri
Strategy
Succession Planning Masterclass
By - Nigel Penny, Global Strategy Advisor: NSP Strategy Facilitation Ltd.
Data Science
SQL for Data Science along with Data Analytics and Data Visualization
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
AI and Analytics based Business Strategy
By - Tanusree De, Managing Director- Accenture Technology Lead, Trustworthy AI Center of Excellence: ATCI
Web Development
A Comprehensive ASP.NET Core MVC 6 Project Guide for 2024
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital Marketing Masterclass by Pam Moore
By - Pam Moore, Digital Transformation and Social Media Expert
Artificial Intelligence(AI)
AI-Powered Python Mastery with Tabnine: Boost Your Coding Skills
By - Metla Sudha Sekhar, IT Specialist and Developer
Office Productivity
Mastering Microsoft Office: Word, Excel, PowerPoint, and 365
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital marketing - Wordpress Website Development
By - Shraddha Somani, Digital Marketing Trainer, Consultant, Strategiest and Subject Matter expert
Office Productivity
Mastering Google Sheets: Unleash the Power of Excel and Advance Analysis
By - Metla Sudha Sekhar, IT Specialist and Developer
Web Development
Mastering Full Stack Development: From Frontend to Backend Excellence
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of experience and Accounting Educator
Data Science
SQL Server Bootcamp 2024: Transform from Beginner to Pro
By - Metla Sudha Sekhar, IT Specialist and Developer

Here are the opinions of experts on whether the new tax regime will allow for a 50K NPS deduction in Budget 2025.

Kinjal Bhuta, Secretary, Bombay Chartered Accountants' Society (BCAS), says,"The National Pension Scheme was opened for all in 2009 as an investment instrument for creating retirement corpus. The deduction was available under section 80CCD of the Income Tax Act, 1961. Deductions under section 80CCD had two components – one where contribution is made by the employer and second where any tax payer can contribute on its own. The deduction for contribution made by the employer is available under old and new regimes of taxation both, however the deduction towards self-contribution to NPS under section 80CCD (1) was discontinued in the New Tax regime. In the 2024 Budget, the deduction against employer’s contribution to pension scheme u/s. 80CCD (2) has been increased to 14% of salary for private sector employers from 10%. The benefit of this amendment was made only applicable to those taxpayers who are opting for the new tax regime u/s. 115BAC. Taking cue from this latest amendment made, it is anticipated that the deduction of NPS for self-contribution may also be made available for the New Tax regime to make the scheme more attractive for tax-payers. The Government is intending to gradually transition the majority of taxpayers from the old regime to the new tax regime. This is quite evident from constant and steady efforts over the past few years in making the new tax regime more tax efficient. Allowing NPS deductions under the New Tax regime could significantly help to achieve this goal."

Yogesh Kale, Executive Director , Nangia Andersen LLP, says, "The new tax regime was presented as one being easy to understand to a layman and was subsequently also made the default tax regime. However, the new tax regime allows fewer deductions to the taxpayer and restricts the investment area in terms of tax benefits available to them. Though, NPS contributions made by the employers up to 10% of the salary of the employees, are still allowed as deduction under section 80CCD(2) of the Income-tax Act even under the new tax regime, allowing an additional deduction of 50,000 under 80CCD(1B) of the Act would make the new tax regime more lucrative.
This is floating as one of the top expectations from the upcoming budget. While there are speculations about the likely proposals to reduce the tax liability for individuals, whether the liability would be reduced by allowing some deductions like the one discussed above under the new regime or it would be just by way of revision in the slabs and slab rates, is something that only time will tell."

Mihir Tanna, associate director, S.K Patodia LLP, says, "The new tax regime was introduced to make compliance by the taxpayer easier and to make the administration process of the Income Tax Act by the tax authorities less burdensome. At the same time in the budget speech of 2020 our Hon'ble FM said that they will review and rationalise the remaining exemptions and deductions in the coming years with a view to further simplifying the tax system and lowering the tax rate."

Yeeshu Sehgal, Head of Tax Markets, AKM Global, says,"There seems to be a good chance that Budget 2025 might introduce a Rs 50,000 NPS deduction under the new tax regime as people are getting more conscious about their retirement planning than previous generations were. It also aligns with the government's focus on retirement planning and to make the new regime more appealing to everyone. Including this deduction would also create fairness for those who currently miss out on this benefit by choosing the new regime."

This story originally appeared on: India Times - Author:Faqs of Insurances