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 apply to both public and private companies in the new tax regime. Government employees already get a deduction on employers’ contribution of up to 14%.
Deduction on 14% contribution only in the new regime
Deduction under section 80CCD (2) is available in both the old and new tax regimes for NPS . However, the deduction on 14% employer’s contribution is available only in the new income tax regime. Finance Minister Nirmala Sitharaman said in her budget speech, “In order to increase social security benefits, it is proposed to increase the deduction on employer’s contribution to NPS from 10% to 14% of the employee’s salary.” This means that taxpayers using the old regime will be able to avail the deduction only on 10% employer’s contribution (of basic salary).
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NPS is a government retirement scheme
National Pension System or NPS is a retirement benefit scheme of the government. Apart from people working in private companies, common people can also invest in it. When the subscriber turns 60 years old, 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’s decision to increase the deduction on the employer’s contribution in NPS. Now private sector employees can show more interest in this scheme.
