Centre’s Budget 2024 set to boost National Pension System’s attractiveness

One key recommendation to augment NPS attractiveness is the proposal to make the annuity portion of the NPS tax-free for individuals aged 75 and above. This move aims to incentivize senior citizens to opt for the NPS by offering them a tax advantage on annuities.

In an effort to enhance the appeal of the National Pension System (NPS), the Centre is reportedly gearing up to announce significant measures, including potential tax concessions on contributions and withdrawals. According to sources, these announcements are expected to be a focal point in the upcoming interim Budget, scheduled to be presented by Finance Minister Nirmala Sitharaman on 1st February.

The Pension Fund Regulatory and Development Authority (PFRDA) has advocated for tax parity with the Employees’ Provident Fund Office (EPFO), particularly concerning employer contributions. If implemented, these proposals could bridge the taxation gap between the two pension schemes, providing a more level playing field for contributors.

One key recommendation to augment NPS attractiveness is the proposal to make the annuity portion of the NPS tax-free for individuals aged 75 and above. This move aims to incentivize senior citizens to opt for the NPS by offering them a tax advantage on annuities. Additionally, there is a suggestion to amalgamate NPS contributions with interest and pension, potentially relieving senior citizens aged 75 and above from the hassle of filing returns if they possess NPS proceeds.

Currently, the lump-sum withdrawal of 60 per cent from the NPS is already tax-free, and experts believe that extending tax relief to the annuity portion for individuals aged 75 and above could further encourage long-term savings through this retirement avenue.

Deloitte’s Budget expectations further recommend extending tax breaks for NPS contributions under the new tax regime. Presently, contributions of up to ₹50,000 to the NPS under Section 80CCD (1B) qualify for a deduction under the old tax regime but not under the new structure. This move aims to align the tax benefits across both tax regimes, providing consistency for contributors.

The government has also initiated a review of the pension system for government employees, led by a committee chaired by Finance Secretary T V Somanathan. The committee was established last year to evaluate the pension system’s current framework and suggest improvements. The anticipated report from this panel is expected to shed light on potential modifications to the existing NPS framework for government employees, taking into consideration fiscal implications and the overall budgetary landscape while prioritizing fiscal prudence.

As the government aims to bolster the NPS and make it a more attractive retirement savings option, these proposed measures, if implemented, could significantly impact the financial planning of individuals, especially senior citizens, providing them with enhanced tax benefits and a streamlined filing process. The Budget announcement on February 1 will be closely watched for these anticipated reforms in the pension sector.