Centre may make the National Pension System (NPS) more attractive by considering potential tax concessions on contributions and withdrawals, with a specific focus on individuals aged 75 and above, reported PTI.
The Pension Fund Regulatory and Development Authority (PFRDA) has urged for “parity” in taxation with the Employees’ Provident Fund Office (EPFO) in terms of employer contributions. These proposals are anticipated to be addressed in the forthcoming interim Budget to be presented by finance minister Nirmala Sitharaman on February 1.
‘Make annuity portion of NPS tax-free for individuals aged 75 and above’
A key suggestion to enhance NPS attractiveness is to make the annuity portion of the NPS tax-free for individuals aged 75 and above. Additionally, there is a proposal to amalgamate NPS contributions with interest and pension, ensuring that senior citizens above 75 years do not have to file returns if they possess NPS proceeds. Currently, the lump-sum withdrawal of 60 per cent from NPS is tax-free.
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To further encourage long-term savings through the NPS and alleviate the tax burden on senior citizens, Deloitte’s Budget expectations recommend extending tax relief to the annuity portion for holders aged 75 and above.
‘Provide tax breaks for NPS contributions under new tax regime’
Moreover, calls have emerged for tax breaks on NPS contributions under the new tax regime. Currently, an individual’s contribution of up to ₹50,000 to the NPS under Section 80CCD (1B) qualifies for a deduction under the old tax regime but not under the new tax structure. This deduction is separate from the ₹1.5 lakh tax relief provided under Section 80C in the old tax regime.
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Somanathan committee report awaited
The government has also undertaken a review of the pension system for government employees. A committee, led by Finance Secretary T V Somanathan, was established last year to evaluate the pension system and recommend improvements.
The committee is expected to provide insights into potential modifications to the existing framework of the NPS for government employees, keeping in mind fiscal implications and the overall budgetary landscape while prioritising fiscal prudence. The report from this panel is still awaited.