Union Budget 2021 Expectations for NPS: Every time the finance minister tends to make the Budget announcements, the expectation for the alterations in the National Pension System (NPS) remains higher. The government and the PFRDA have been taking quite a few actions in the previous to make NPS a more investor-friendly investment selection for retirement.
Currently, the maximum tax advantage below section 80CCD(1B) is Rs 50,000 a year. As per section 80CCD(1B), the taxpayer – either employee or self-employed – is permitted deductions on the quantity contributed towards NPS up to Rs 50,000. The deduction below Section 80CCD(1B) is more than and above the deduction availed below Section 80CCD(1). However, the similar quantity can not be claimed below each the sections. “The government should consider increasing the additional deduction limit for individuals from Rs 50,000 to Rs 100,000 or Rs 150,000 when it comes to NPS. Today, the Section 80C limit of Rs150,000 for many taxpayers is not enough to save tax. Increasing the NPS limit for additional deduction will help people to save tax and encourage long-term investing,” says Harshad Chetanwala, Co-Founder, MyWealthGrowth.com.
On the quantity invested in NPS, 1 can avail tax breaks below Section 80CCD (1), Section 80CCD(1B) and Section 80CCD (2) of the I-T Act. Importantly, as per Section 80CCE, the aggregate quantity of deduction below Section 80C, 80CCC and 80CCD(1) can not exceed Rs 1. 5 lakh in a monetary year.
“At present, the voluntary contribution under NPS is exempt to the extent of Rs 50,000. Further, NPS contribution by the Central government for Central government employees was increased from 10% to 14% with effect from 1 April 2019. An increase in the limit of NPS investment (including employees of private sector) is expected – Preferably from Rs 50,000 to Rs 1,00,000,” says Raghunathan Parthasarathy, Associate Partner – Tax & Regulatory Services, BDO India.
The tax structure of NPS is in a way tax-absolutely free for the investor. While the maximum withdrawal quantity of 60 per cent at age 60 is tax-absolutely free, the balance 40 per cent is not taxable in the hands of the investor. However, when annuity becomes payable on the balance 40 per cent, the pension received is taxable as per the earnings tax slab of the person. “The government in 2019 raised the income tax deduction limit on withdrawal from NPS corpus on retirement or reaching the age of 60 to 60 per cent from 40 per cent. On retirement, a subscriber can withdraw a lump-sum of up to 60 per cent of the NPS corpus fund and the balance 40 per cent has to be invested in an annuity plan. With this the government has brought NPS benefits almost at par with provident fund, which is exempt on withdrawal provided the employee has been a member for 5 years with the fund,” says Aarti Raote, Partner, Deloitte India.
However, not all professionals have the similar opinion on the enhance in the voluntary limit. “In 2020, the government capped the overall exemption limit for contribution to retirals (superannuation, PF and NPS) at Rs 750,000. It is unlikely that the government would further seek to make changes to the already beneficial provisions,” says Raote.