By Vivek Dubey
CNBC-TV18.com
Published July 23, 2024
The Union Budget 2024 boosts NPS tax deduction from 10% to 14% of employees' basic salary, benefitting both public and private sectors.
Previously reserved for government employees, the enhanced 14% NPS deduction now extends to all employees under the new tax regime.
The 14% deduction rate is available exclusively under the new tax regime, while section 80CCD(2) deductions continue under both old and new regimes.
Finance Minister Nirmala Sitharaman announced the increase, aiming to enhance social security benefits through higher NPS deductions.
The National Pension System (NPS) is a government scheme for retirement income, offering tax benefits and regulated investment options for subscribers.
NPS includes Tier 1 for mandatory retirement savings and Tier 2 for voluntary savings, catering to diverse investment needs and risk appetites.
Both NPS accounts are managed by the Pension Regulatory Authority of India (PRAN), ensuring secure and regulated investment opportunities.
The enhanced deduction is expected to boost NPS participation among employees and employers, promoting long-term financial security.
Tier 1 accounts are primarily for retirement savings, while Tier 2 accounts provide flexibility for additional voluntary savings.
This change aligns private sector benefits with those of government employees, aiming to standardise retirement savings benefits across sectors.
The increased NPS deduction is designed to support employees’ long-term financial health by incentivising higher contributions to retirement savings.