Increased National Pension System additional deduction limit from Rs 50,000 to Rs 1 Lakh in Budget wishlist

Budget 2022 expectations for National Pensions System subscribers: Increasing the additional deduction limit under NPS from Rs 50,000 to Rs 1 lakh is one of the many items on the Budget wishlist of subscribers.

NPS subscription

Budget 2022 expectations for National Pensions System (NPS) subscribers: Increasing the additional deduction limit under NPS from Rs 50,000 to Rs 1 lakh is one of the many items on the Budget wishlist of subscribers this year.

Currently, taxpayers are allowed an additional deduction of Rs 50,000 under Section 80 CCD (1B), which is over and above the Rs 1.5 lakh deduction allowed under Section 80C. Experts feel that increasing this limit to Rs 1 lakh would provide further incentive to taxpayers to invest in this scheme. This will also help subscribers generate a good retirement corpus.

“Since in India, a social security module is absent, it is essential for the citizens to create enough retirement corpus for their sunset years. Even though NPS helps one save but that doesn’t provide much relief with the current rules under the tax incentive under Section 80CCD(1B) which is pretty limited. It is an evident fact that a mere investment of Rs. 50,000 annually is not a sufficient amount that will help an individual reach the goal of having a decent corpus to him when she or he reached their autumn of life. Therefore, to make things easy, the new budget is expected to enhance the deduction to Rs, 1 lakh to give a decent meaning to the corpus,” Ankit Agarwal, Managing Director, Alankit, told FE Online.

“While NPS is not taxed in any form during the accumulation phase, the annuity component is fully taxed. For retiring subscribers, extending beyond 60 can make a material difference, “ he added.

Tax-free NPS withdrawals

The Bombay Chamber of Commerce & Industry (BCCI) also suggested that NPS withdrawals should be made fully exempt from taxation.

“Government introduced National Pension Scheme in 2012, but the same is not so popular (especially among the young generation), as its withdrawals are not fully exempt. Further, the social security system of India is not so robust that it will take care of the individuals after their retirement,” BCCI said in its Pre-Budget Memorandum.

“To improve the participation under the NPS, withdrawals should be made fully exempt from taxation,” it added.

Tax-free withdrawal for non-employee subscribers

In its pre-budget memorandum, the Institute of Chartered Accountants of India (ICAI) noted that The Finance Act, 2018 extended the benefit of exemption under section 10(12A) to all assessees. “However, till now, the Act does not contain a similar amendment in respect of benefit of exemption under section 10(12B), consequent to which such benefit of exemption in case of partial withdrawal continues to be restricted to employees alone.”

Section 10(12B) provides for exemption of up to 25% of contributions made by an employee in cases of partial withdrawal from NPS.

“To provide equity between the employee and non-employee subscriber, similar amendment may be made in section 10(12B) to extend the benefit available thereunder to non-employee subscribers, ICAI recommended.

Provident Fund to NPS portability

The ICAI also suggested that a one-time portability option from recognised Provident Fund to NPS should be provided.

“It is suggested that necessary legislative amendments are introduced so as to compulsorily mandate the one-time portability from a recognised provident fund to the NPS at the option of the employee member.”

ICAI said that even after four years, members of recognised provident fund trusts are not able to transfer their balance at their choice to the NPS. “This is because in order to make such transfers the respective provident fund trusts are required to make an amendment in their trust rules which need to be approved by the Regional Provident Fund Commissioners office. These approvals are not forthcoming as there is no enabling amendment in the Employee Provident Fund & Miscellaneous Provisions Act, 1952, read with EPF Scheme 1952,” it said.

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