Budget 2024-25 has sweetened the deal for both employers and employees in non-government sectors, rewarding them with increased tax deduction on National Pension System (NPS) contributions.
The deduction of expenditure by employers towards NPS is proposed to be increased from 10 per cent to 14 per cent of the employee’s salary, Finance and Corporate Affairs Minister Nirmala Sitharaman said in her Budget speech on Tuesday.
Similarly, deduction of this expenditure up to 14 per cent of salary from the income of employees in private sector, public sector banks and undertakings, opting for the new tax regime, is proposed to be provided, Sitharaman said.
NPS FOR MINORS
Sitharaman also announced that NPS-Vatsalya, a plan for contribution by parents and guardians for minors, will be started. Upon the minor attaining the age of maturity , the plan can be converted seamlessly into a normal NPS account.
NPS COMMITTEE
Sitharaman also announced that the committee to review the NPS has made “considerable progress” in its work. “Iam happy that the staff side of the National Council of the Joint Consultative Machinery for Central Government Employees have taken a constructive approach. A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens,” Sitharaman added.
TAX EXPERTS’ TAKE
Yogesh Kale, Executive Director, Nangia Andersen LLP explained that currently an employer gets deduction u/s 36 of IT Act for contribution to an employee’s NPS up to 10 per cent of the employees’ salary. Employer’s contribution becomes perquisite for the employee. However, the employee in turn gets a deduction u/s 80CCD(2) up to 14 per cent of salary (for government employees) and 10 per cent of salary (for other employees), in addition to deduction u/s 80CCD(1) for employee’s own contribution.
“For bringing parity between government and non-government employees, it is proposed to revise the upper cap of deduction u/s 36 to 14 per cent of an employee’s salary. Correspondingly, deduction under section 80CCD(2) is also proposed to be capped to 14 per cent of salary also for non-government employees. However, the enhancement of upper cap under section 80CCD(2) will be applicable only under new regime,” Kale added.
Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm, said, “The amount of employer contribution allowed as deduction has been enhanced from 10 per cent to 14 per cent of the salary of the employee. This will further boost the option of NPS by employees as a retirement kitty and resultant contributions. However, this will only be allowed to employees who opt for new tax regime and hence this shows the intention of the government to further strengthen the position of new tax regime as preferred and default regime.”