Business: National Pension System- In this year’s budget, Finance Minister Nirmala Sitharaman made several tax changes to the existing structure that will impact all taxpayers. She made a major change to the capital gains tax regime affecting all asset classes. On the other hand, the budget proposed liberalised tax slabs and rates, and raised the standard deduction limit to Rs 75,000 under the new concessional tax regime. One of the measures proposed for salaried taxpayers was to raise the deduction limit on employer’s contribution to the employees’ National Pension System (NPS) from 10% to 14%, which is valid only under the new tax regime.
After Union Budget 2024,
The new tax regime, which is now the default tax-filing regime, has been further simplified, but it will continue to offer fewer deductions than the old tax regime. The previous regime, though still available, is no longer the default option and offers multiple deduction opportunities. It is important for taxpayers to analyze which regime best matches their financial objectives and maximizes their benefits. In terms of NPS, tax benefits are available under both the old and new tax regimes in India. NPS taxation differs from the old tax regime and the new tax regime. Under the old tax regime, NPS offers tax benefits under three sections of the Income Tax Act, 1961.
Increase in NPS under new tax regime (Budget 2024-25)
Employees opting for the new tax regime are now entitled to a bigger deduction of up to 14% of their basic salary for contributions made by the employer to the NPS on behalf of the employee under Section 80CCD(2) of the Income Tax Act. This change was introduced in the Union Budget 2024, which outlined a substantial increase in the deductible amount for employer contributions to employees’ NPS. The deduction rate applicable to the basic salary of employees has recently been increased from 10% to 14%. This new deduction rate under the revised regime will be applicable to both public sector companies and private sector entities. It is worth mentioning that government employees currently get a deduction of 14% on their NPS contributions. This increased deduction is governed by section 80CCD(2) of the Income Tax Act and is eligible for both the existing and the new simplified tax structure. However, the increased 14% deduction rate will be effective exclusively under the newly introduced simplified tax system.
