Sunday, October 17, 2021

Higher income tax deduction on NPS likely for private sector employees

Within the Finances 2021, tax specialists count on the federal government to repair some anomalies within the NPS with regard to revenue tax advantages. They are saying that it will assist in rising the attractiveness of the Nationwide Pension Scheme.

“For contribution in direction of Tier I account as much as 14% of the employer’s contribution is permitted for central authorities staff however in the case of different staff most as much as 10% of the contribution from employer is eligible for deduction underneath Part 80CCD(2). The federal government ought to introduce amendments to care for these anomalies to make the scheme simply and honest for every class of subscribers,” mentioned Balwant Jain, an funding and tax skilled.

Below the present revenue tax legal guidelines, if an employer is contributing in direction of the worker’s NPS account, a deduction as much as a sure share of wage (primary + DA) regardless of any restrict qualifies for revenue tax deduction underneath Part 80 CCD(2). For central authorities staff, it’s 14% of wage and for others, the restrict is 10%.

There’s additionally an expectation to extend the quantum of exemption for employer contribution from 10% of wage to 14% on the traces of what’s being offered to authorities staff, says Saraswathi Kasturirangan, associate at Deloitte.

There are lots of different anomalies within the NPS scheme which the federal government ought to work on within the finances to be offered on 1st February, mentioned Balwant Jain.

“The federal government ought to instantly usher in readability about taxation of withdrawals from Tier II account of NPS in order that the subscriber shouldn’t be left on the discretion of the assessing officer. The withdrawals from Tier I are tax-free and the stability 40% needs to be used to purchasing an annuity. However there is no such thing as a provision about how the withdrawals from Tier II account ought to be taxed since these usually are not the mutual fund merchandise for which there exist precise guidelines. Full readability will go a good distance in clearing the clouds round tier II account taxation,” he mentioned.

“For contribution in direction of tier II account solely the Central Authorities staff are allowed to say deduction underneath Part 80 C with a lock-in interval of three years. The identical choice shouldn’t be accessible to different subscribers,” he added.

At the moment, a central authorities worker’s contribution in direction of Tier-II account of NPS for availing revenue tax deduction (as much as 1.5 lakh) per 12 months could have a lock-in interval of three years.

“All of the eligible subscribers ought to be allowed the good thing about tax profit in direction of Tier II account specifically when this presents much less dangerous choice the place subscriber can go for a debt portion of 100% making it much less dangerous as in comparison with different product accessible of the identical time tenure i.e. ELSS or Fairness Linked Financial savings Schemes,” he mentioned.

Mr Jain additionally says that the federal government ought to usher in parity between tax remedy of worker provident fund and NPS on the time of maturity. “The maturity proceeds of EPF are totally tax-free and the subscriber is free to speculate the cash the way in which he needs. Nonetheless, the NPS subscriber can solely withdraw upto 60% of the collected stability in his NPS account on the time of retirement and for the stability he has to mandatorily purchase an annuity from any life insurance coverage firm registered with IRDA,” he added.

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