With Finance Minister Nirmala Sitharaman expected to present the interim Union Budget on February 1, all eyes are on the likely tax tweaks. The Centre is likely to cut tax on contributions and withdrawals in the National Pension System (NPS) to make it more attractive for taxpayers, especially those aged above 75 years.
The Pension Fund Regulatory and Development Authority (PFRDA) has sought more tax exemption on employer contributions to pensions in order to align it with Employees' Provident Fund Office (EPFO). Hence, some announcements on this front is likely in the upcoming interim Union Budget.
For contributions under NPS, only up to 10 per cent of basic salary and dearness allowances by a corporate are exempt from tax currently while it is 12 per cent under EPFO.
Deloitte India, in its budget expectations, said the NPS annuity portion should be made tax-free for the holders from the age of 75 so that tax burden can be reduced and long-term savings can be promoted. It added that if NPS is included along with interest and pension, senior citizens aged over 75 do not have file IT returns.
Currently, the lump-sum withdrawal of 60 per cent is tax free under the pension system. Calls are also growing loud to bring in tax breaks for NPS contributions under the new tax regime.
Under the old tax regime, up to Rs 50,000 NPS contribution by individuals is exempt from tax as per Section 80CCD (1B). This is over and above the Rs 1.5 lakh tax relief provided under Section 80C in the old tax regime.
However, a report sought from a committee formed in 2023 under Finance Secretary T.V. Somanathan to review the pension system is still awaited. The panel is expected to suggest measures by keep in mind the fiscal implications and impact on overall budgetary space.
