NPS: This change made in the budget can make the National Pension Scheme attractive, know how..
The National Pension Scheme (NPS) is slowly gaining popularity as more and more people are using it for their retirement planning. It already had an additional benefit of Rs 50,000 under the old tax regime, but the Union Budget 2024 has made some changes by increasing the deduction for employer contribution (from 10% to 14%) under the new tax regime.
The latest change makes NPS more attractive for the salaried class, although this benefit may be of limited use as it is available only to those opting for the new tax regime and cannot be used by the non-salaried class.
Here is a closer look at how individual taxpayers can claim different contributions to NPS.
Section 80CCD
NPS includes different types of contributions depending on the category of the individual. For example,
If you are an employee and it is part of the retirement compensation provided by the employer, then there will be an amount to be contributed by both the employer and the employee.
On the other hand, for a non-salaried individual investing on his own, it will be only the person who is investing in the scheme.
The entire change in the budget pertains to the situation where both the employer and the employee are contributing and hence those who are contributing on their own will not get the benefit.
What changes were made?
Under the budget changes, if any employer other than the central government and state government is contributing to NPS, then up to 14% of the employee's salary will be given as a deduction, provided they are in the new tax regime.
Earlier, the 14% deduction for employer contribution was only for central or state government employees, while it was only 10% for other entities, which covered private companies.
Old tax regime
When it comes to the old tax regime, NPS offers several benefits to the individual. Here we are talking about the case of salaried taxpayers.
As far as the employee's contribution is concerned, his contribution is eligible for up to Rs 1.5 lakh under section 80CCD (1) as well as section 80C.
An additional contribution of Rs 50,000 under section 80CCD (1B) is also allowed as a deduction, taking the total benefit to Rs 2 lakh.
Further, employer contributions up to 14% of salary in the case of central or state government employees and 10% of salary in the case of other entities can also be claimed as a deduction under section 80CCD(2).
New Tax Regime
There is no tax benefit available for employee contribution under the new tax regime, hence the benefits under the old tax regime vanish along with many other deductions.
Now with the budget changes, employees can claim a deduction of up to 14% of employer contribution under section 80CCD(2) if they are central or state government or other entities.
Earlier the deduction limit for other entities was 10%, but this higher limit of 14% means that more amount can be claimed if the contribution is made by the employer.
However, this facility is only available under the new tax regime, hence it becomes an extra benefit if you opt for it.
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