India is poised to explore extending tax concessions on both contributions and withdrawals within the National Pension Scheme (NPS) during the upcoming Interim Budget 2024, aiming to enhance the scheme’s attractiveness. This insight is derived from a report by Deloitte, suggesting a specific focus on individuals aged 75 and above in the proposed measures.
The anticipated adjustments may be disclosed during the Interim Budget presentation scheduled for February 1, led by Finance Minister Nirmala Sitharaman. Currently, there is a disparity in employer contributions toward employees’ corpus building.
Corporations currently enjoy tax exemptions for contributions up to 10 percent of the basic salary and dearness allowances under the NPS, while the equivalent figure stands at 12 percent for the Employees’ Provident Fund Office (EPFO).
The Pension Fund Regulatory and Development Authority (PFRDA) is advocating for “parity” in taxation on employer contributions, aligning it with the EPFO, as reported by The Economic Times.
In a strategic move to promote long-term savings through the NPS and alleviate tax burdens for individuals aged 75 and above, Deloitte proposes rendering the annuity portion of NPS tax-free for this specific age group. There is also a plea to include NPS, along with interest and pension, in the list of exemptions, sparing senior citizens above 75 from the obligation of filing returns if they possess NPS proceeds. Currently, the lump-sum withdrawal of 60 percent remains tax-free.
Simultaneously, there is a growing demand for tax breaks on NPS contributions under the new tax regime. Presently, an individual’s contribution of up to Rs 50,000 to the NPS is deductible under Section 80CCD (1B) in the old tax regime but not in the new regime, in addition to the Rs 1.5 lakh tax relief provided under Section 80C in the old regime.
For government employees, a committee led by Finance Secretary TV Somanathan was established last year to review the pension system and propose enhancements. The awaited Budget 2024 will determine if changes are necessary in the existing framework and structure of the NPS for government employees, aiming to strengthen pensionary benefits while ensuring fiscal prudence for the welfare of the general populace.
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