Other employees to get the same NPS tax deduction as Centre Government employees.
Employees of state governments, public sector undertakings, and private corporations may also be eligible for a full deduction for contributions to the National Pension System, subject to a cap of 24 percent of basic income and dearness allowance. In the upcoming Union Budget, an announcement to this effect is expected.
Since the financial year 2019-20, Central government employees have been eligible for a deduction of 24 percent of their salaries for NPS payments under Section 80C of the Income Tax Act (employees’ contribution of 10% and employers’ share of 14 percent). However, for other employees, the cap remains at 20% (10% payment from both the business and the employees). Despite the fact that employers’ contribution of NPS has been increased to 14 percent by as many as 15 state governments and public sector banks.
Maharashtra, Odisha, Jharkhand, and Karnataka are among the states that have increased their NPS contribution to 14 percent. The Centre also approved a proposal in August to enhance employers’ contributions under the NPS from 10% to 14% for employees of public sector banks, however the additional 4% payment is not eligible for a tax benefit.
“There should be consistency in tax treatment of NPS contributions under 80C,” a Pension Fund Regulatory and Development Authority official stated, “and the higher ceiling of 24 percent should be extended to all salaried subscribers, including corporate personnel.” Subscribers can deduct 24 percent of their contributions to the Employees Provident Fund Organisation (EPFO) (12 percent of basic pay each by employee and employer).
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Since April 1, 2004, when NPS became mandatory for new recruits in the Central Government, most state governments have embraced it for their personnel, as well as staff of autonomous bodies, state PSUs, corporations, and boards.
With the Centre wanting to expand retirement scheme coverage to a wider section of society, particularly in the corporate sector, analysts believe it makes sense to extend it to other eligible subscribers.
“Everyone who participates in a comparable programme should receive the same tax incentive.” It would encourage people to save more and grow their savings in the economy, as well as help them build their retirement funds,” said Gautam Bhardwaj, co-founder of pinBox, a global pensionTech dedicated on digital micro-pension inclusion in Asia and Africa.
According to PFRDA chairman Supratim Bandyopadhyay, the NPS is gaining traction in the private sector after languishing for over a decade, with roughly 10 lakh new subscribers (corporate employees and individuals) likely to join in FY22. Higher tax savings (extra ‘50,000 deduction possible for NPS over and above the 80C limit) and better returns in comparison to other traditional products are expected to drive demand for NPS (over 10 percent compared with 8.5 percent in employees provident fund in FY21).
As the government sector reaches saturation, the private sector will drive NPS growth in the coming years. On December 4, 2021, the number of corporate personnel enrolled increased by 65 percent to 13.21 lakh, up from 8.03 lakh on March 31, 2019. During the same time period, subscribers from the Central Government increased by 13% to 22.46 lakh, while those from state governments increased by 26% to 54.5 lakh.
As of December 4, 2021, there were 4.78 crore NPS users, with 68 percent of them in the Atal Pension Yojana (a government-backed, voluntary scheme meant to provide old-age income security in the form of minimum assured pension in the unorganised sector). However, as of December 4, 2021, the central government, state governments, and corporate sector subscribers accounted for 92 percent of the Rs 6.91 lakh crore in assets under administration in the NPS.
Source: financialexpress.com
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