Home / Money / Personal Finance /  Higher income tax deduction on NPS proposed for private, state govt employees

For the next budget, Pension fund regulator PFRDA will propose to the government to make employers' contribution of 14% under NPS or National Pension Scheme tax free for all categories of subscribers. Currently, the 14% limit is given only to the central government employers.

"We may propose things like 14% contribution by employers to be made tax free to all. So we are requesting the government to give it to all the employers, whether it is state governments or other corporate entities, so that subscribers across the board can get this benefit," PFRRDA or Pension Fund Regulatory and Development Authority Chairman Supratim Bandyopadhyay told PTI.

If an employer is contributing towards the employee's NPS account, a deduction up to a certain percentage of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD(2). For central government employees, it is 14% of salary and for others, the limit is 10%.

The PFRDA chairman said states are asking that the 14% tax benefit be given to state government employees also.

Besides, the Pension Fund Regulatory and Development Authority (PFRDA) will ask the government to extend the benefit of tier-II NPS account as tax free for all subscribers. Recently, the facility was granted to the central government employees under Section 80C.

A central government employee's contribution towards Tier-II account of NPS for availing income tax deduction (up to 1.5 lakh) per year will have a lock-in period of 3 years.

There are two types of NPS accounts -- tier-I and tier-II. A tier-II account under NPS is not a compulsory account, one can have it along with the tier-I account.

Meanwhile, PFRDA expects to begin the process for separating NPS Trust from itself in the next financial year. In the Union Budget for 2019-20, the government had proposed to separate the NPS Trust from the pension regulator in order to address issues of conflict of interest.

The trust was established by the PFRDA for taking care of the assets and funds under the NPS. The proposal to separate the two job roles has been under consideration for the last few years.

Keeping in view the wider interest of the subscribers and to maintain arm's length relationship of the NPS Trust with the PFRDA, steps will be taken to separate the NPS Trust from the authority with appropriate organisational structure, Finance Minister Nirmala Sitharaman had said in July 2019 while presenting the full budget for FY2020 post the general elections. (With Agency Inputs)

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