Experts believe that the New Tax Regime’s NPS modifications demonstrate a progressive approach to enhancing workers’ short- and long-term financial security.
NPS In New Tax system: Finance Minister Nirmala Sitharaman suggested raising the tax deductions for employers’ contributions from 10% to 14% in order to make the New Pension Scheme (NPS) more alluring under the new tax system.
NPS Employer Contribution Tax Benefit
During her budget address for 2024–25, Sitharaman stated that in order to enhance social security benefits, companies are suggesting raising the amount they deduct from employee salaries for NPS from 10% to 14%.
In a similar vein, it is suggested that employers in the public and private sectors that choose to adopt the new tax system deduct this expense from their income by up to 14% of their wage.
BDO India Partner (Global Employer Services, Tax & Regulatory Services) Preeti Sharma explained the provision, stating that for employees working for public and private sector banks and undertakings and who have chosen to contribute to NPS, an additional deduction of 4% of basic salary is provided towards the employer’s contribution for the NTR.
According to Sonu Iyer of EY India, National Leader and Tax Partner for People Advisory Services, the plan to raise the tax deduction will boost the popularity of NPS.
The suggested increase, according to Prashant Shah, co-founder of TeamNest.com, is a big step in the right direction toward improving retirement security.
“This modification enables workers to build up a bigger retirement fund, guaranteeing more security over their post-retirement years. Additionally, employees benefit from higher retirement savings without incurring any additional personal costs because to the increased employer contribution of 14%, Shah said.
Moreover, there are significant tax savings associated with increased NPS payments, which cut taxable income and the overall tax obligation. According to Shah, this program not only fortifies the social security system but also increases the NPS’s appeal to workers in the banking industry, the private sector, and public sector enterprises.
The minister of finance also suggested launching “NPS-Vatsalya,” a program that requires parental and guardian contributions for youngsters.
Once the plan member reaches majority, it can be easily turned back into a regular NPS account.
