Standard Deduction For Salaried Class: After the Modi government came to power for the third time, the expectations of the middle class have increased a lot. Experts say that this time the Finance Minister can give relief to the tax payers in standard deduction and NPS.
After the Modi government came to power for the third consecutive time, the expectations of individual taxpayers have increased significantly from the full budget to be presented on July 23, 2024. This time the budget is expected to focus on the middle class. In this budget, it is expected that many big announcements can be made by the government to provide relief to the National Pension Scheme (NPS) members. In this budget, the tax exemption limit on NPS contribution can be increased to 12 percent, currently it is 10 percent.
Benefit of deduction under the old regime
Investment in NPS (National Pension Scheme) gets the benefit of deduction of income tax under the old regime. It is a saving scheme run by the government to provide security in old age. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The money deposited in it and the interest received on it is tax free. But a little tax is levied while withdrawing the money. Now PFRDA has recommended increasing the tax exemption. The regulator says that in terms of tax, there should be equal opportunities for companies and employers contributing to NPS just like EPFO, right now there is inequality in it.
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Facility to deposit up to 10% of salary
Under NPS (National Pension Scheme), salaried class people can deposit up to 10% of their salary. Businessmen can deposit up to 20% of their total earnings. This is a benefit available under section 80CCD(1) of the Income Tax Act. In the old tax regime, this can be clubbed with the limit of Rs 1.5 lakh available under section 80C. If you are in the old tax regime, you can additionally avail deduction of up to Rs 50,000 on the amount voluntarily deposited in NPS. This is available under section 80CCD(1B) of the Income Tax Act.
Two benefits of increasing the limit of NPS
In Budget 2024, the additional deduction of up to Rs 50,000 that salaried taxpayers get for voluntary contribution to NPS is available only under the old tax regime. It is expected that the government will implement this deduction in the new tax system as well. There will be two benefits of this. First, taxpayers will be able to get the benefit of additional deduction even in the new tax regime. Second, along with the new tax regime, there will be more investment in retirement schemes as well.
If the contribution increases, the in-hand salary will be less!
Currently, deduction regarding employer’s contribution (maximum 10%) is given under both the old and new tax regimes. The government can consider increasing this limit to 12%. If this happens, it will be like a discount of up to 12% in PF contribution. This can benefit all salaried class taxpayers. However, due to increase in employer’s contribution, the amount of salary received by the employee may be less. Efforts are now being made to make the new tax regime the preferred tax regime. In this, you get a lower tax rate, but for this you have to give up the exemptions on some things.
Apart from this, the government can consider increasing the limit of standard deduction of Rs 50,000 available under the new tax regime to Rs 75,000. This will benefit the salaried class, irrespective of which tax regime they have selected. In view of inflation and rising prices, it can be implemented by the government in Budget 2024. To make the new tax regime more attractive, the government can consider some changes.
