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NPS in Budget 2024: After the Modi government came to power for the third consecutive time, the expectations of individual taxpayers have increased significantly from the full budget to be presented on 23 July 2024. This time the focus in the budget is expected to be on the middle class. In this budget, it is expected that many big announcements can be made by the government to provide relief to the members of the National Pension Scheme (NPS). In this budget, the limit of tax exemption on NPS contribution can be increased to 12 percent, currently it is 10 percent.
Benefit of deduction under the old system
Investment in NPS (National Pension Scheme) gets the benefit of deduction under the old system of income tax. It is a savings scheme run by the government to provide security in old age. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The money deposited in it and the interest received on it is tax free. But a little tax is levied while withdrawing the money. Now PFRDA has recommended increasing the tax exemption. The regulator says that in terms of tax, there should be equal opportunities for companies and employers contributing to NPS just like EPFO, right now there is inequality in it.
Facility to deposit up to 10% of salary
Under the NPS (National Pension Scheme), the salaried class can deposit up to 10% of their salary. Businessmen can deposit up to 20% of their total income. This is a benefit available under Section 80CCD(1) of the Income Tax Act. This can be clubbed with the limit of Rs 1.5 lakh available under Section 80C in the old tax regime. If you voluntarily deposit in NPS in the old tax regime, you can additionally avail a deduction of up to Rs 50,000 on the amount. This is available under Section 80CCD(1B) of the Income Tax Act.
Two benefits of increasing the NPS limit
In Budget 2024, the additional deduction of up to Rs 50,000 that salaried taxpayers get for voluntary contribution to NPS is available only under the old tax system. It is expected that the government will implement this deduction in the new tax system as well. This will have two benefits. First, taxpayers will be able to avail the benefit of additional deduction in the new tax system as well. Second, with the new tax system, there will be more investment in retirement plans as well.
If the contribution increases, the salary in hand will be less!
Currently, both the old and new tax systems provide deduction for employer's contribution (maximum 10%). The government may consider increasing this limit to 12%. If this happens, it will be like a discount of up to 12% in PF contribution. All salaried class taxpayers can avail this benefit. However, due to the increase in employer's contribution, the amount of salary received by the employee may decrease. Now efforts are being made to make the new tax system the preferred tax system. In this, you get a lower tax rate, but for this you have to give up the exemption on some things.
Consideration on increasing the limit of standard deduction
Apart from this, the government can consider increasing the limit of standard deduction of Rs 50,000 under the new tax system to Rs 75,000. This will benefit the salaried class, irrespective of which tax system they have chosen. In view of inflation and rising prices, the government can implement it in Budget 2024. To make the new tax system more attractive, the government can consider some changes.