Budget 2022: Employer NPS Contribution Exemption for State Government Employees has been Increased to 14%

Beginning in FY2022-23, state government employees will be eligible for a 14 percent tax advantage on their employer’s NPS (National Pension Scheme) contribution, bringing them on par with central government employees, according to the Union Budget 2022. This is still capped at ten percent for private-sector employees.

On April 1, 2020, this change will take effect. As a result, it will apply to assessment years 2020-21 and following assessment years to ensure that no additional tax burden occurs on any contribution made during that period that is greater than 10%.

Nirmala Sitharaman, the finance minister, stated in her budget statement on Tuesday, “To offer equal treatment to both central and state government employees, I propose raising the tax deduction ceiling on employer contributions to state government employees’ NPS accounts from 10% to 14%. This procedure would serve to improve state government employees’ social security benefits and bring them up to line with federal government employees.”

The benefit of the deduction for private-sector employees has not altered. Deloitte India Partner Saraswathi Kasturirangan said, “Employer payments to the NPS are deductible under section 80 (CCD)(2), but only up to 10% of salary as defined. This benefit was previously available to central government employees up to 14% of their income, but it has since been expanded to state government employees. This perk, however, has not been extended to non-government employees, who are still subject to the 10% restriction “Utilize.”