Pension regulator PFRDA has urged Finance Minister Nirmala Sitharaman to increase the limit of additional tax deduction on investments under the National Pension System (NPS) from ₹50,000 to ₹1 lakh in the upcoming Budget for 2023-24.

This suggestion — to enhance the limit under Section 80 CCD(1B) — should be music to the ears of individual NPS subscribers as this window of tax break of ₹50,000 was currently available in addition to the Section 80C limit of ₹1.50 lakh already available to salaried individuals. 

Capital gains treatment

To further sweeten the deal for NPS subscribers, PFRDA has also pitched for capital gains treatment as available to mutual fund industry for gains liquidated from NPS Tier-II investments, sources close to the development said. 

Also, the pension regulator has submitted that NPS be excluded from perquisite valuation for employer contribution in respect of salaried employees. 

When employers give NPS contribution to employees, that amount currently gets added as a perquisite for taxation purposes and allowed as deduction. Now, PFRDA wants NPS to be excluded from perquisite calculation, since last year’s Budget had introduced an overall monetary ceiling of ₹7.5 lakh for NPS, superannuation funds and recognised provident funds all put together, sources added.

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HIGHER TAX BREAK FOR BUSINESS EXPENSE

PFRDA also wants to give a better NPS deal for employers and pitched for enhanced tax break to them for their NPS contributions for employees. 

The existing limit be increased from 10 per cent to 14 per cent for claiming contribution made by employer as business expenditure, PFRDA has suggested in its pre-Budget recommendations to Finance Ministry.

STANDARD DEDUCTION ON ANNUITY 

PFRDA has also as part of its pre budget suggestions recommended that “standard deduction” be allowed in respect of the annuity income received by corporate retirees from an annuity plan purchased through NPS.

TAX PARITY ON EMPLOYER CONTRIBUTIONS 

In another significant suggestion, PFRDA has called for tax parity on employer contribution for all NPS subscribers. It has recommended an increase in the tax deduction limit on employer contribution from 10 per cent to 14 per cent for all assessees at par with Central and State government employees. 

The idea is to bring corporate employees and self-employed individuals on par with Central and State Government employees. 

It may be recalled that since FY20, the Central government employees have been eligible for a deduction of 24 per cent (employees’ contribution of 10 per cent and employer’s share of 14 per cent) for NPS contributions. 

This benefit was extended to State government employees from April 1, 2022. However, for private sector and public sector employees the limit continues to be 20 per cent (10 per cent contribution each by employer and employees). The exception is public sector banks which have already raised the employer’s share to NPS to 14 per cent, taking the overall contribution for deduction to bank employees to 24 pre cent.

PFRDA is of the view that there should be tax parity among sectors within NPS. The entire 14 per cent contribution by the Central or state governments for their personnel is tax free. The pension regulator wants this same benefit be extended to corporate sector as well as individuals subject to a condition that NPS is the only superannuation benefit for these subscribers, sources said.

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