Budget: Exemption on employer NPS contribution for state govt staff hiked to 14%

NEW DELHI: State government employees will be able to claim a tax benefit of 14% on NPS (National Pension Scheme) contribution made by their employer, beginning FY2022-23, bringing it on a par with central government employees, the Union Budget 2022 has proposed. For private sector employees, this remains capped at 10%.

This amendment will be effective, 1 April 2020. Accordingly, it will apply to assessment year 2020-21 and subsequent assessment years to ensure no additional tax liability arises on any contribution made more than 10% during such time.

In her budget speech on Tuesday, finance minister, Nirmala Sitharaman, said, “To provide equal treatment to both central and state government employees, I propose to increase the tax deduction limit from 10% to 14% on employer’s contribution to the NPS account of state government employees as well. This process would help enhance the social security benefits of the state government employees and bring them at par with central government employees.”

The deduction benefit for private sector employees remains unchanged. Saraswathi Kasturirangan, Partner, Deloitte India, said, “Employer contributions to NPS are eligible for deduction under section 80 (CCD)(2) however limited to 10% of salary as defined. This benefit was available up to 14% of salary for central government employees and has now been extended to state government employees. However, this benefit has not been extended to non-government employees where the limit of 10% continues to apply.”

How will it benefit government employees: A higher NPS contribution means a higher retirement corpus. Adhil Shetty, CEO, BankBazaar.com, explained, “Say if your monthly contribution was 5000, then at the end of 30 years, your total contribution is 18 lakh and the value of your corpus will be approximately 1.14 Crore at 10% returns. A 4% increase, from 10% to 14%, would mean your monthly corpus goes up by 200. However, this raises your overall corpus to 1.18 crore over 30 years. Assuming 6% returns on 40% of the corpus invested into an annuity means an increase of 1000 in your monthly pension, from approximately 22,700 to 23,700.”

Vinay Taluja, Chief Product Officer, Bajaj Capital, said that this would help taxpayers reduce their tax burden. And due to the extra 4% contribution every year, the additional corpus accumulated would also increase, assuming a 10% return over a span of 30 years. “Subscribers can therefore avail additional benefit from the power of compounding,” Taluja said.

Besides, NPS also offers additional deduction benefits for up to 50,000 under section 80CCD (1B). You can claim this additional deduction from total gross income before levy of tax by investing in Tier I accounts of NPS. Taluja said, “Apart from providing optimum returns and other benefits, NPS also provides tax exemption, which helps individuals save tax up to 2 lakhs under section 80CCD1, 80CC (1B).”

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint.
Download The Mint News App to get Daily Market Updates.


Subscribe to Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.

Source link

Leave a Comment

Your email address will not be published. Required fields are marked *

%d bloggers like this: