As the government prepares to unveil the interim budget on February 1, there is heightened speculation about potential changes in the National Pension Scheme (NPS).
Senior citizens, particularly those above 75 years of age, might witness a significant boost, with expected announcements regarding increased tax rebates on NPS investments and withdrawals.
Proposed Changes in NPS:
Pension fund regulator PFRDA has advocated for a more consistent approach, aligning NPS contributions with EPFO guidelines.
Currently, there exists a disparity in employer contributions between NPS and EPFO, and the interim budget is anticipated to address this imbalance.
Corporate contributions up to 10 percent of the basic salary and dearness allowance are currently exempted from tax for NPS, whereas EPFO contributions enjoy a 12 percent tax exemption.
Tax Relief for Senior Citizens:
Deloitte’s budget expectations suggest that the interim budget might introduce measures to encourage long-term savings through NPS, particularly aiming to reduce the tax burden for senior citizens aged 75 and above.
The proposal includes providing a tax rebate on the annual portion of NPS, ultimately exempting senior citizens from filing returns on income received from NPS.
Rebate Expansion for NPS under New Tax Regime:
Currently, NPS investors do not receive tax rebates for investments under the new tax regime, creating a demand for changes.
There’s a push to extend tax rebates for NPS investments under the new tax regime, similar to the existing deduction available under section 80CCD (1B) in the old tax regime, which allows individuals to claim deductions up to Rs 50,000.
Ongoing Pension System Review:
Last year, the government initiated a comprehensive review of the pension system, forming a committee led by Finance Secretary TV Somanathan.
While the committee is yet to submit its final report, the upcoming interim budget might address certain aspects related to NPS to benefit both senior citizens and the employed population.
