Budget 2024 raises NPS tax deduction to 14% for all sectors

By Vivek Dubey

CNBC-TV18.com

Published July  23, 2024

Increased Deduction Rate

The Union Budget 2024 boosts NPS tax deduction from 10% to 14% of employees' basic salary, benefitting both public and private sectors.

Applies to All Sectors

Previously reserved for government employees, the enhanced 14% NPS deduction now extends to all employees under the new tax regime.

New Regime Benefits

The 14% deduction rate is available exclusively under the new tax regime, while section 80CCD(2) deductions continue under both old and new regimes.

FM’s Announcement

Finance Minister Nirmala Sitharaman announced the increase, aiming to enhance social security benefits through higher NPS deductions.

Understanding NPS

The National Pension System (NPS) is a government scheme for retirement income, offering tax benefits and regulated investment options for subscribers.

Two Account Types

NPS includes Tier 1 for mandatory retirement savings and Tier 2 for voluntary savings, catering to diverse investment needs and risk appetites.

Regulated Investment

Both NPS accounts are managed by the Pension Regulatory Authority of India (PRAN), ensuring secure and regulated investment opportunities.

Encouraging Participation

The enhanced deduction is expected to boost NPS participation among employees and employers, promoting long-term financial security.

Retirement Savings Focus

Tier 1 accounts are primarily for retirement savings, while Tier 2 accounts provide flexibility for additional voluntary savings.

Sector-Wide Impact

This change aligns private sector benefits with those of government employees, aiming to standardise retirement savings benefits across sectors.

Long-Term Benefits

The increased NPS deduction is designed to support employees’ long-term financial health by incentivising higher contributions to retirement savings.