Every employed person either has a PF account or an NPS account is opened under the new pension scheme. Tax exemption is also available on the contribution made to both the accounts, but there remains a gap between government and private sector employees regarding NPS. The private sector currently gets only 20 percent tax exemption in NPS, due to which efforts are being made to increase it at par with government employees.
new Delhi. There is good news for private sector employees amidst opposition to National Pension Scheme (NPS) and demand for old pension. The Pension Regulatory and Development Authority (PFRDA) has said in its proposal that private sector employees will also be given income tax exemption on contribution up to 24 per cent in NPS like government employees. At present, only government employees are given tax exemption of 24 percent.
According to Financial Express, FRDA has said in its proposal sent to the Finance Ministry that corporate sector employees and professionals will also be given the benefit of tax rebate on the entire 24% amount on contribution to NPS. Presently such employees are given tax exemption only on contribution up to 20 per cent. Actually, under NPS, 10 per cent amount is deducted from the basic and DA of the employee, while the employer contributes 14 per cent to it.
From the financial year 2019-20, tax exemption is available on the entire 24 percent contribution made to the NPS account of central employees. In this, 10 percent of the employee and 14 percent of the employer remain. After this, from April 1, 2022, the scope of this income tax exemption was also extended to the employees of all the states. But, for private sector employees, this limit was limited to 20 per cent, which includes 10 per cent employee and 10 per cent employer’s contribution. Similarly, the scope of tax exemption for professionals is limited to only 20 per cent.
Exemption will remain like PF account
PFRDA Chairman Supratim Bandyopadhyay says that now that the central and state employees are being given tax exemption on the entire 14 per cent contribution made by their employer, now the corporate sector employees should also be given its benefit. Actually, with this step, the tax exemption available on NPS will reach equal to PF account. At present, 12 percent contribution is made by the employee in the PF account and 12 percent by the employer. In this way, tax exemption is given on the total amount of 24 percent.
Now tax rebate up to 50 thousand on pension also
PFRDA has now proposed to give a rebate of 50 thousand in the form of standard deduction on the pension received under NPS. Actually, at present, the benefit of standard deduction of 50 thousand is given on salary during the job, while some employers give this benefit on pension also. But, pension under NPS is given by third party service provider. Therefore, this amount is taken as other income, on which the benefit of standard deduction is not available.
PFRDA chairman says that now the employees who buy annuity under NPS should also consider the income from it as part of their salary and get the benefit of standard deduction on that too. At present, the Finance Ministry is considering this proposal and a decision may be taken to extend 24% tax exemption to private sector employees on NPS.
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