Budget 2020: Will Modi government hike income tax benefit under NPS from Rs 50,000 to Rs 1 lakh?

Budget 2020: While most taxpayers are hoping that Modi government announces an increase in income tax benefits under Section 80C on Budget 2020 day, they might get some other good news in the form of deduction on contribution to National Pension Scheme. The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. Additionally, the investors can save up to Rs 50,000 under section 80CCD(1B) as NPS tax benefit.

This allows them to save over the Rs 1.5 lakh limit of Section 80C. The limit should be increased to Rs 1 lakh, believes Divya Baweja, Partner, Deloitte India. She said that it would encourage investors to save more for retirement.

"An additional deduction of INR 50,000 is allowed on self-contribution towards NPS for those who have exhausted the limit of deduction of INR 1.5 lakh under Section 80C. Considering the returns and additional tax benefit which NPS provides, it is an attractive investment option for a taxpayer. The government could consider raising the limit of INR 50,000 to INR 1 lakh which will encourage the investor to save more for retirement and help in further increasing the popularity of the scheme," she said.

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Baweja explained that the contribution by employer to NPS up to 10 percent of basic pay of the individual, is deductible. "NPS for the government sector was increased to 14 percent last year - a similar increase is expected for the private sector as well," she said.

The government might also look to double benefit under Section 80 from Rs 25,000 to Rs 50,000.

"Healthcare costs continue to rise and hence people need a higher health insurance cover. The government may consider increasing the investment limit in respect of payment towards health insurance premium under section 80D from Rs 25,000 to at least Rs 50,000 for self and family, and for senior citizens dependent parents from Rs 50,000 to at least Rs 75,000," Baweja said.

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