NPS contribution cap: Advocate for raising the NPS contribution cap exemption threshold and stay informed

NPS contribution cap: Advocate for raising the NPS contribution cap exemption threshold and stay informed

NPS contribution cap: Advocate for raising the NPS contribution cap exemption threshold and stay informed

Budget 2024: On February 1st, Finance Minister Nirmala Sitharaman will unveil the financial plan for the next fiscal year 2024–25. Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), Deepak Mohanty, has advocated for the tax exemption of employers' contributions to the National Pension System (NPS), which may amount to up to 12% of their workers' base pay.

Budget 2024: On February 1st, Finance Minister Nirmala Sitharaman will unveil the financial plan for the next fiscal year 2024–25. Experts are also making recommendations and asking the Finance Minister for this. In this regard, Deepak Mohanty, Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), has encouraged that companies contribute to the National Pension System (NPS) at a rate of up to 12 percent of their workers' base pay, with the payment being tax exempt. Deepak Mohanty claims that businesses may get tax advantages on up to a 12 percent contribution to their workers' Provident Funds (PF), and he is now requesting that employers receive the same tax benefits on their NPS contributions.

In plain English, the head of the pension regulator PFRDA has asked to raise the PF account exemption ceiling to 12 percent. Currently, under NPS, only 10 percent of the pay, including basic and DA, is free from taxation. The goal is to reach 14%, however, since government workers are exempt from paying taxes on contributions to provident funds up to that amount.

Which provision offers what amount of tax relief?

Employers or corporations may claim a tax exemption on contributions made to their workers' NPS accounts up to 10% of their basic pay and dependent allowance (DA). Employees of the government make up 14% of the population. It is deductible under Section 36(1)(iv)(a) of the Income Tax, 1961 as business costs in the Profit and Loss Account.

Section 80CCD(2) of the Income Tax Act also permits employees to claim a tax deduction on contributions up to ten percent of their pay. Both the previous and the new tax regimes provide this advantage. Employer contributions to all retirement plans combined may result in tax savings of up to Rs 7.5 lakh per year. This is on top of the extra deductions under section 80CCD(1) of up to 10% of pay (subject to the total 80C limit of Rs 1.5 lakh) and section 80CCD(1B) of up to 50,000 of salary on one's personal NPS contribution.

The number of NPS subscribers is rising quickly.

PFRDA has set a goal to enroll 13 lakh customers, including individuals and corporates, in the fiscal year 2023–2024. Thus far this year, almost 5 lakh new users have joined the NPS ecosystem. Nonetheless, the regulatory body continues to place its expectations in the last three months of current fiscal year, namely. January through March. Many of these individuals sign up over these three months in order to invest and avoid taxes. Mohanty claims that the combined Assets Under Management (AUM) of all subscriber categories has surpassed Rs 11 lakh crore. In parallel, the total number of NPS subscribers increased from 6.06 crore in December 2022 to 7.03 crore in December 2023, a 16 percent increase. It also contains information on subscribers to the Atal Pension Yojana (APY) and government workers.

Shares are not as heavily invested as corporate bonds and government instruments.

Only 17 percent of the shares in the Rs 11 lakh crore fund are managed by PFRDA. It is dominated, in Mohanty's opinion, by government securities and business bonds with AAA ratings. Although they have been authorized, Reits (Real Investment Trusts), InvITs (Infrastructure Investment Trusts), and Alternative Funds still have a very tiny percentage. Based on information gathered until December 30, 2023, the total AUM for all subscriber groups increased by around 28% and surpassed Rs 10.91 lakh billion.