Budget 2023: Will govt allow private companies to hike NPS contribution to 14%? Anil Singhvi weighs in

Budget 2023: As the Budget 2023 nears, the salaried class is anticipating some major announcements that would reduce the tax burden. One such scheme where taxpayers are hopeful of a modification is the National Pension Scheme or NPS.  

What is the National Pension Scheme (NPS)?

NPS is a voluntary contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. The scheme seeks to inculcate the habit of saving for retirement amongst the citizens. It is a sustainable solution to the problem of providing adequate retirement income to every citizen of India.

Who can open a NPS account?

A citizen of India, whether resident or non-resident, subject to the following conditions: Applicant should be between 18 – 70 years of age as on the date of submission of his/her application and should comply with KYC norms prescribed.

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Benefits of National Pension Scheme (NPS) Account

1. Low Cost:

Administrative charges and fund management fee are reasonable.​

2. Easily Accessible:

All applicants have to do is to open an account with any one of the Post Office Protocol (POP) being run through all Head Posts Offices across India and get a Permanent Retirement Account Number.

3. Flexible:

Applicants can choose his/her own investment option and Pension Fund or select Auto choice to get better returns.

​4. Portable:

Applicants can operate an account from anywhere in the country and can pay contributions through any of the POP-SPs irrespective of the POP-SP branch with whom the applicant is registered, even if he/she changes his/her city, job etc and also make contribution through eNPS. The account can be shifted to any other sector like Government Sector, Corporate Model in case the subscriber gets the employment.

5. Tax Benefits:

a) Employee’s own Contribution towards NPS Tier-I is eligible for tax deduction under section 80 CCD (1) of the Income Tax Act within the overall ceiling of Rs. 1.50 lakh under section 80 C of the Income Tax Act. From FY 2015-16, the subscriber is also allowed tax deduction in addition to the deduction allowed under section 80CCD(1) for contribution to NPS Tier I account subject to a maximum of Rs. 50,000 under section 80CCD 1(B ).

b) Employer’s contribution towards NPS Tier-I is eligible for tax deduction under Section 80CCD

(2) of the Income Tax Act (14% of salary for central government employees and 10% for others). This rebate is over and above the limit prescribed under Section 80C.

c) Interim/ Partial withdrawal up to 25% of the contributions made by the subscriber from NPS Tier-I is tax free.

d) With effect from 1.4.2019, lump sum withdrawal up to 60% of total pension wealth from NPS Tier-I at the time of superannuation is tax exempt.

e) Minimum 40% of the amount utilized for purchasing an annuity from the Annuity Service Provider, registered and regulated by the Insurance Regulatory and Development Authority (IRDA) and empanelled by PFRDA is also tax exempt.

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Anil Singhvi's view

Zee Business Managing Editor Anil Singhvi believes that the limit for the NPS scheme for private employees should also be increased to 14 per cent which will be in parity with the government employees limit. He said that this will aide private sector employees in planning their retirement.

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