NPS could get additional income tax benefits: Key things to know
People have a lot of expectations from Nirmala Sitharaman's Union Budget 2022. The additional deduction limit under the National Pension Scheme (NPS) could be raised from ₹50,000 to ₹1 lakh this year. Experts feel that increasing this limit to ₹1 lakh would provide further incentive to taxpayers to invest in this scheme. If this happens, it will not only help the taxpayers to generate a decent retirement corpus but will also provide further incentive to the taxpayers to invest in the scheme.
“Contributions made by taxpayers to their NPS account are eligible for a deduction under section 80C (limit ₹1.5L). Also under section 80CCD(1)(B) up to a maximum of ₹50,000 can be claimed as a deduction for self contributions made to NPS Account. However, Section 80C is already crowded with many expenses and investments and hence taxpayers are not able to fully avail of the tax benefit from the investments made by them in NPS. Deduction under section 80CCD(1)(B) should be raised to ₹1L," Spokesperson - Mr Archit Gupta, Founder and CEO - Clear said.
Nirav Karkera, Head - Research, Fisdom says that the additional deduction was introduced almost seven years back to incentivise retirement-focused investing behaviour. Through seven years, cost of living, income levels and necessity inflation has soared in ways that render most previous thresholds inadequate. “Section 80C, which includes NPS investments, fosters a culture of prudent personal finance behaviour and an expansion in the limits for the entire section is warranted. However, an increment in the limit for additional deduction for NPS investments would also amount to a similar correct step in the right direction," he said.
Amit Gupta, MD, SAG Infotech says that it is everyone's wish that this year’s budget increases the limit of deduction from ₹50,000 to ₹1 lakh.
“NPS is here to help one save, but neither NPS is sufficient nor the existing rules under tax incentives u/s 80CCD(1B) are beneficial in any way. It is clear that even if people invest ₹50,000 a year, it will not help them in reaching their goal of having a good corpus post-retirement. Therefore, it is everyone's wish that this year’s budget increases the limit of deduction from ₹50,000 to ₹1 lakh," said Gupta.
Ravi Singh, Vice President and Head of Research-Share India thinks an annual investment of ₹50,000 is not enough for an individual to get a decent corpus during his/her retirement period.
In India, the social security module is not present, hence it is almost compulsory for every citizen to plan their retirement corpus in advance. Currently, NPS is giving such plans to support retirement. To support this, it would be a great step and much needed if the government increase the limit to ₹1,00,000 to earn better savings," says Ravi Singh.
NPS is an essential retirement planning tool. It holds an important place in the overall portfolio of an investor which must include other types of asset classes as well. One can have an income tax exemption on NPS investment up to ₹50,000 under Section 80CCD.
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