PFRDA May Propose Higher IT Deduction For All On NPS Contributions

Pension funds regulator, PFRDA, is planning to propose to the government that the employers’ contribution of 14% under the National Pension Scheme (NPS) be made tax-free for all categories of subscribers. At present, the 14% limit is only available to the Central government employers. This recommendation will be made with reference to the upcoming budget.

This recommendation may be that everybody can get the tax-free provision making it applicable to all the employers, irrespective of being state government-owned bodies or corporate entities. 

Currently, the income tax deduction available on the employer’s contribution towards employees’ NPS account is equal to a certain portion of the salary, i.e. basic pay + dearness allowance. Any limits are not currently applicable under Section 80CCD(2). 

For Central government employees, the applicable share is 14% of the salary and for others, it is 10% of the salary. The Chairman of PFRDA stated that states have been requesting for a 14% tax benefit be given for state government employees as well. 

Also Read: New announcements by FM, income tax relief for property owners

Besides this, PFRDA may ask the government to extend the benefit to tier-II NPS account subscribers. This facility was granted to the Central government employees recently under Section 80C. When a Central government employee contributes towards Tier-II NPS account, the contribution will have a lock-in period of three years.

It was also revealed that PFRDA is looking to separate NPS Trust from itself in the upcoming fiscal year. This initiative was proposed in the Union Budget for FY20, as a solution to the conflict of interest between the two entities. PFRDA had set up the trust to take care of the funds and assets belonging to NPS. The NPS Trust will be given an appropriate organisational structure once separated, the FM had stated while presenting the budget.

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