Finance Minister Nirmala Sitharaman said in the Union Budget that now the employer’s contribution to the employee’s NPS account will be eligible for deduction up to 14% of the basic salary. Earlier, the deduction limit on employee’s contribution was 10%
NPS Deduction Hike: The Union Budget has announced an increase in the deduction for employers’ contribution to the National Pension System (NPS). It has been increased from 10% to 14% of the employees’ basic salary. This change will be applicable to both public and private companies in the new tax regime. Government employees already get deduction on employer’s contribution up to 14%.
Deduction on 14% contribution only in the new regime
Under section 80CCD (2), deduction in NPS is available in both the old and new tax regimes. But, the benefit of deduction on employer’s 14% contribution will be available only in the new income tax regime. In her budget speech, Finance Minister Nirmala Sitharaman said, “In order to enhance social security benefits, it is proposed to increase the deduction on employers’ contribution to NPS from 10% to 14% of the employees’ salary.” This means that taxpayers using the old regime will be able to avail deduction only on 10% of the employer’s contribution (of basic salary).
NPS is a government retirement scheme
National Pension System i.e. NPS is a government retirement benefit scheme. Apart from people working in private companies, common people can also invest in it. When the subscriber turns 60, he gets regular pension from this scheme. Under this scheme, the subscriber’s contribution is invested in different types of assets. The subscriber can use low risk and high risk investment options according to his risk taking capacity.
Interest in NPS will increase after the announcement in the budget
There are two types of accounts in NPS – Tier 1 and Tier 2. Tier 1 is a pension account, which focuses on retirement savings. Tier 2 is a voluntary savings account. Experts say that the attraction of this scheme has increased due to the Finance Minister increasing the deduction on the employer’s contribution in NPS. Now private sector employees can show more interest in this scheme.
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