Budget 2024: Finance Minister Nirmala Sitharaman will present the budget for the next financial year 2024-25 on February 1. Pension Fund Regulatory and Development Authority (PFRDA) Chairman Deepak Mohanty has urged that the contribution that employers make to the National Pension System (NPS) up to 12 percent of the basic salary of employees, should be made tax free.
Budget 2024: Finance Minister Nirmala Sitharaman will present the budget for the next financial year 2024-25 on February 1. For this, experts are also presenting suggestions and requesting the Finance Minister. In this context, Pension Fund Regulatory and Development Authority (PFRDA) Chairman Deepak Mohanty has urged that the contribution that employers make to the National Pension System (NPS) up to 12 percent of the basic salary of the employees, should be made tax free. According to Deepak Mohanty, tax benefits are available on the contribution of up to 12 percent in the Provident Fund (PF) of the employees and now he is demanding to give equal tax benefits to the employers on the contribution in NPS.
If you understand in simple language, currently under NPS, only 10 percent of the salary including basic and DA is out of the scope of exemption i.e. tax, which the chairman of pension regulator PFRDA has demanded to increase the exemption limit of PF account i.e. 12 percent. However, the target is to take it to 14 percent because in the case of government employees, up to 14 percent contribution to the provident fund is tax free.
How much tax relief is available under which section?
Under the National Pension Scheme, employers or corporates can claim tax exemption on contribution up to 10 percent of basic salary and DA in the NPS account of employees. In the case of government employees it is 14 percent. It is deducted as business expenses in the Profit and Loss Account under Section 36(1)(iv)(a) of the Income Tax, 1961.
Employees can also claim tax deduction on contributions up to 10 percent of their salary under section 80CCD(2) of the Income Tax Act. This benefit is available in the old as well as the new tax regime. Overall, a maximum of Rs 7.5 lakh tax benefits can be availed annually on the contributions of employers in all retirement schemes combined. This is in addition to the additional deduction of up to 10 per cent of salary (subject to the overall 80C limit of Rs 1.5 lakh) on own NPS contribution under section 80CCD(1) and up to Rs 50,000 under section 80CCD(1B).
NPS subscribers are increasing rapidly
In the financial year 2023-24, PFRDA has set a target to enroll 13 lakh subscribers including corporates and individuals. More than 5 lakh subscribers have been added to the NPS ecosystem so far this year. However, the regulator is still pinning its hopes on the last three months of this financial year i.e. January-March. A lot of such people join in these three months and invest to save tax. According to Mohanty, the Assets Under Management (AUM) of all subscriber categories together has touched the level of Rs 11 lakh crore. At the same time, the overall NPS subscriber base jumped by 16 percent from 6.06 crore in December 2022 to 7.03 crore in December 2023. It also includes data of government employees and Atal Pension Yojana (APY) subscribers.
More money is invested in corporate bonds and government securities than in shares.
In the Rs 11 lakh crore fund that PFRDA is managing, the share of shares is only 17 percent. According to Mohanty, it is dominated by AAA-rated corporate bonds and government securities. Reits (Real Investment Trusts), Infrastructure Investment Trusts (InvITs) and Alternative Funds are also approved but their share is still very small. According to the data till December 30, 2023, the total AUM across all subscriber categories jumped by about 28 percent and crossed the level of Rs 10.91 lakh crore.
