Budget 2024: Will NPS Scheme get a revamp in Interim Budget 2024?

India is expected to consider expanding tax breaks on contributions and withdrawals in the upcoming Interim Budget 2024 in order to make the National Pension Scheme (NPS) more attractive, according to a report.

The government may focus on individuals above the age of 75. This effort is expected to result in reforms, which Finance Minister Nirmala Sitharaman may disclose during her Interim Budget presentation on February 1.

Employer contributions to employee corpus building are currently inconsistent. Corporations are exempt from paying taxes on contributions up to 10% of their basic income and dearness allowances under NPS, while EPFO pays 12%.

The Pension Fund Regulatory and Development Authority (PFRDA) seeks “parity” with the Employees’ Provident Fund Office (EPFO) in terms of employer contribution taxation, the report says.

Developing policies to attract NPS investors

In order to stimulate long-term investments through NPS and reduce tax costs for seniors over the age of 75, it has suggested making the annuity portion of NPS tax-free for that age group.

Furthermore, there is a call to include NPS, along with interest and pension, in the list of exemptions, which would remove senior citizens over 75 from the hassle of filing returns if they possess NPS proceeds. Currently, the lump sum withdrawal of 60% is tax-free.

There is also a growing desire for tax breaks on NPS contributions under the new tax regime.

Currently, an individual’s contribution to the NPS of up to Rs 50,000 is deductible under Section 80CCD (1B) under the old tax regime but not under the new.

This is in addition to the Rs 1.5 lakh tax relief given by Section 80C under the old tax regime. Last year, a committee led by Finance Secretary TV Somanathan was formed to examine and improve the pension system for government employees.

The forthcoming Budget 2024 will assess if changes are required in the existing framework and structure of the NPS for government employees, with the goal of increasing pensionary benefits while maintaining prudent finance for the welfare of ordinary residents.