Since financial year 2019-20, the Central government staff has been eligible for deduction of 24% of salary (employees’ contribution of 10% and employers’ share of 14%) for NPS contributions under Section 80C of the Income Tax Act.
Similar to the Central government staff, employees with state governments, PSUs and the private corporate sector may also get full deduction for the contributions made to the National Pension system subject to a ceiling of 24% of basic salary and dearness allowance. An announcement is expected in the coming Union Budget.
Since financial year 2019-20, the Central government staff has been eligible for deduction of 24% of salary (employees’ contribution of 10% and employers’ share of 14%) for NPS contributions under Section 80C of the Income Tax Act. But the limit continues to be 20% (10% contribution of each by employer and employees) for other employees. This is despite the fact as many as 15 state governments and public sector banks have subsequently enhanced employers’ share to NPS to 14%.
The states that raised the NPS share to 14% include Maharashtra, Odisha, Jharkhand and Karnataka. In August, the Centre has also approved the proposal to increase employers contribution under the NPS to 14% from the existing 10% for employees of public sector banks but no tax deduction is available to the additional 4% contribution.
“There should be parity in tax treatment of NPS contribution under 80C and the enhanced limit of 24% should be extended to all salaried subscribers including corporate employees,” a Pension Fund Regulatory and Development Authority official said. For contribution to the Employees Provident Fund Organisation (EPFO), subscribers are allowed 24% tax deduction (12% of basic pay each by employee and employer).
NPS, which was mandatory for central government employees for new recruits since April 1, 2004, has since been adopted by most of the state governments for their employees as well as for the employees of autonomous bodies, state PSUs, corporations and boards.
With the Centre keen to widen the coverage of retirement schemes to a larger section of society, especially in the corporate sector, it makes sense to extend it to other eligible subscribers, analysts reckon.
“Tax incentive should be equal for everybody who is participating in a similar scheme. It will provide incentives for higher savings and growth of savings in the economy as well as help increase the retirement corpus of people,” said said Gautam Bhardwaj, co-founder of pinBox, a global pensionTech committed to digital micro-pension inclusion in Asia and Africa.
After stagnating for over a decade, the NPS is gaining traction in the private sector with about 10 lakh new subscribers (corporate employees and individuals) expected to join it in FY22, PFRDA chairman Supratim Bandyopadhyay had told FE recently. Higher tax-saving potential (additional `50,000 deduction available for NPS over and above the 80C limit) and attractive returns vis-à-vis other traditional products are seen spurring demand for NPS (over 10% compared with 8.5% in employees provident fund in FY21).
With saturation level reaching in the government sector, private sector will drive NPS growth in the coming years. Corporate employees enrollment grew 65% to 13.21 lakh as on December 4, 2021 compared with 8.03 lakh as on March 31, 2019. During the same period, the Central government-employee subscribers grew 13% to 22.46 lakh while state-government subscribers grew 26% to 54.5 lakh.
Total number of NPS subscribers as of December 4, 2021, was 4.78 crore, 68% of which are in the Atal Pension Yojana (a government-backed, voluntary scheme meant to provide old-age income security in the form of minimum assured pension in the unorganised sector). However, in terms of asset under management under NPS, the central government, state government and corporate sector subscribers account for 92% of the Rs 6.91 lakh crore as on December 4, 2021.
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