Budget 2024: Salaried class eyes extended relief in NPS and PPF income tax benefits

As Budget 2024 approaches, the salaried class is anticipating announcements that could ease their tax burdens. Among the expectations are revisions to investment schemes such as the National Pension System (NPS) and Public Provident Fund (PPF).

Industry leaders and financial experts have weighed in, presenting arguments for enhancements to the existing tax benefits.

Kurian Jose, CEO of Tata Pension Management, has highlighted a critical aspect of the National Pension System that was altered in the previous financial year.

The deduction of ₹50,000/- under Section 80CCD (1b) for NPS subscribers in the new tax regime was discontinued as of April 1, 2023. Advocating for the reinstatement of this deduction in the upcoming budget, Jose proposed an increase in the limit to ₹1 lakh for both tax regimes.

"This deduction played a significant role in encouraging individuals to invest in NPS, whether employed in the organised sector or not. Reintroducing this exemption could contribute to the widespread adoption of NPS," noted Kurian Jose.

For corporate NPS subscribers, Jose suggested aligning the tax exemption limit for employer contributions under Section 80 CCD (2) with provident funds.

Recommending an increase from the current 10% of the basic salary to 12%, and subsequently to 14%, Jose argued that this adjustment aligns with the longstanding suggestion of the Pension Fund Regulatory and Development Authority (PFRDA).

Krishan Mishra, CEO of FPSB India, emphasised the pivotal role of the National Pension System and Public Provident Fund in supporting retirement planning and overall financial well-being.

Mishra expressed anticipation for the extension of NPS benefits, particularly the coverage of employers' contributions, suggesting an increase to 10%.

He argued that elevating this limit could significantly enhance individuals' retirement and healthcare planning.

Addressing the PPF, Mishra highlighted its importance as a cornerstone for financial stability and called for a higher limit considering rising incomes.

By expanding PPF exposure, Mishra believes that the Budget can pave the way for a robust financial future.

While the NPS is a government-run investment scheme providing subscribers the option to allocate funds across various asset classes, the PPF is a small savings scheme with a lock-in period of 15 years.

NPS offers two types of accounts - Tier 1 and Tier 2 - catering to different investment preferences. The Tier 1 NPS account is strictly a pension account and the Tier 2 account serves as a voluntary savings account associated with the Pension Regulatory Authority of India (PRAN).

In NPS, subscribers have the flexibility to contribute at any point in a financial year, alter the contribution amount annually, and choose their investment options and pension fund. The system enables subscribers to witness the growth of their money over time.