National Pension System Enhancements Considered by Government

The Central Government is rumoured to increase the appeal of the National Pension System (NPS) by contemplating extending tax benefits on contributions and withdrawals. Most notably, these considerations centre on benefitting those aged 75 and above. News of these potential changes come directly from the resource of Reader Wall.

Parity with Employer Contributions

The Pension Fund Regulatory and Development Authority (PFRDA) has called for a “parity” in terms of taxation with the Employees’ Provident Fund Office (EPFO) when it comes to employer contributions. It is hoped that these considerations will be taken into account in the forthcoming interim budget to be presented by the Finance Minister on February 1.

Incentivising NPS for the Elderly

A crucial proposition to make the NPS more appealing is to render the annuity portion tax-free for those aged 75 and above. Alongside this, there is consideration to consolidate NPS contributions with interest and pension, ensuring that senior citizens do not have to file returns if they have NPS proceeds. At present, a lump-sum withdrawal of 60 per cent from NPS is free of tax.

Encouraging Long-Term Savings

For stimulating long-term savings via NPS and lessening the tax load on senior citizens, expectations are for an extension of tax relief to the annuity portion for holders aged 75 and above.

Tax Break Calls for NPS Contributions

In addition, there are increasing calls for tax concessions on NPS contributions under the new tax regime. At present, an individual’s contribution to the NPS, up to a limit of ₹50,000 under Section 80CCD (1B), qualifies for a deduction under the old tax regime, but not under the new tax structure. This deduction is separate from the ₹1.5 lakh tax relief offered under Section 80C in the older tax arrangement.

Government Revamp of Pension System

Furthermore, the government has embarked on a review of the pension system for government employees. Last year, a committee led by Finance Secretary T V Somanathan, was set up to scrutinize the pension system and suggest enhancements.

The committee is anticipated to offer insights into potential revisions to the existing framework of the NPS for government personnel. It particularly keeps in mind financial repercussions and the broader budgetary landscape while prioritizing fiscal discipline. The report from this committee is eagerly awaited.