Budget 2024: Will NPS and PPF provide extended relief to income tax benefits?

As Budget 2024 approaches, the salaried class is eagerly anticipating potential measures that could alleviate their tax burdens. One area of focus revolves around investment schemes such as the National Pension System (NPS) and Public Provident Fund (PPF).

Industry leaders and financial experts have voiced their opinions, advocating for improvements to existing tax benefits. Kurian Jose, CEO of Tata Pension Management, has drawn attention to a crucial aspect of the NPS 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. Jose is advocating for the reinstatement of this deduction in the upcoming budget, proposing an increase in the limit to ₹1 lakh for both tax regimes. According to him, this deduction played a significant role in encouraging individuals to invest in NPS, and its reintroduction could lead to widespread adoption.

For corporate NPS subscribers, Jose recommends aligning the tax exemption limit for employer contributions under Section 80 CCD (2) with provident funds. He suggests increasing the current 10% of the basic salary to 12%, and subsequently to 14%, aligning with the long-standing suggestion of the Pension Fund Regulatory and Development Authority (PFRDA).

Krishan Mishra, CEO of FPSB India, stresses the pivotal role of NPS and PPF in supporting retirement planning and overall financial well-being. Mishra anticipates an extension of NPS benefits, particularly the coverage of employers' contributions, suggesting an increase to 10%. He argues that raising this limit could significantly enhance individuals' retirement and healthcare planning. Addressing the PPF, Mishra emphasizes its importance as a cornerstone for financial stability and calls for a higher limit considering rising incomes.

Understanding the schemes, NPS is a government-run investment scheme offering subscribers the option to allocate funds across various asset classes. It comprises Tier 1 and Tier 2 accounts catering to different investment preferences. Tier 1 is strictly a pension account, while Tier 2 serves as a voluntary savings account associated with the Pension Regulatory Authority of India (PRAN). Subscribers have flexibility in contributions, the ability to alter contribution amounts annually, and the choice of investment options and pension funds, allowing them to witness the growth of their money over time.