PSU, State. & private staff to get tax deduction on NPS on par with CGEs

The employees with state governments, PSUs and the private corporate sector may also get a full deduction for the contributions made to the National Pension Scheme on par with the Central government staff. The deductions will be subjected to a ceiling of 24% of basic salary and dearness allowance. The announcement in this regard is expected in the coming Union Budget.

Since financial year 2019-20, the Central government staff has been eligible for deduction of 24% of salary (employees’ contribution of 10% and employers’ share of 14%) for NPS contributions under Section 80C of the Income Tax Act. The Pension Fund Regulatory and Development Authority (PFRA) wanted everyone who participates in a comparable plan should receive the same tax incentive. This will encourage people to save more and expand their savings in the economy, as well as assist them to build their retirement funds.

Since the financial year 2019-20, Central government employees have been eligible for a deduction of 24 per cent of their salaries for NPS payments under Section 80C of the Income Tax Act (employees' contribution of 10% and employers' share of 14 per cent). However, for other employees, the cap remains at 20% (10% payment from both the business and the employees). Despite the fact that employers' contribution to NPS has been increased to 14 per cent by as many as 15 state governments and public sector banks.

Maharashtra, Odisha, Jharkhand, and Karnataka are among the states that have increased their NPS contribution to 14 per cent. The Centre also approved a proposal in August to enhance employers' contributions under the NPS from 10% to 14% for employees of public sector banks, however, the additional 4% payment is not eligible for a tax benefit.

"There should be consistency in the tax treatment of NPS contributions under 80C," the PFRDA stated, "and the higher ceiling of 24 per cent should be extended to all salaried subscribers, including corporate personnel." Subscribers can deduct 24 per cent of their contributions to the Employees Provident Fund Organisation (EPFO) (12 per cent of basic pay each by employee and employer).

Since April 1, 2004, when NPS became necessary for new recruits in the federal government, most state governments have embraced it for their personnel, as well as staff of autonomous bodies, state PSUs, corporations, and boards.