Tax analysts expect the government to address few oddities in the NPS with respect to income tax reductions in Budget 2021. They state that this would help to increase the quality of the National Pension Scheme’s participation.
For Tier I contribution, up to 14 percent of the business contribution is allowed for central government employees however, up to 10 percent of the employer’s contribution is eligible for deduction under Section 80CCDD(2), with respect to different employees. In order to make the plan fair for every class of subscribers, the government ought to introduce amendments to take care of these oddities.
However, under the current income tax laws, if an employer is contributing towards the employee’s NPS account, a deduction up to a certain percentage of salary (essential + DA) independent of any limit fits for the income tax deduction under Section 80 CCD(2). For central government workers, it is 14% of income and for other people, the limit is 10%.
Likewise, there is an assumption to increase the amount of exemption for employer contribution from 10 percent of income to 14 percent on the lines of what is provided to government workers. In the NPS scheme, there are several distinct anomalies that the government can focus on in the budget to be implemented on February 1.
The government ought to promptly bring in lucidity about taxation of withdrawals from the Tier II account of NPS so that the subscriber isn’t left at the prudence of the assessing officer. The withdrawals from Tier I are tax-free and the balance of 40% must be accustomed to purchasing an annuity. Yet, there is no provision about how the withdrawals from the Tier II account ought to be taxed since these are not the mutual fund products for which there exist exact guidelines. Complete clarity will go far in clearing the mists around the level II account taxation.
For contribution towards level II account, only the Central Government workers are permitted to claim deduction under Section 80 C with a lock-in time of three years. A similar choice isn’t available to different subscribers.
As of now, a central government employee’s contribution towards the Tier-II account of NPS for availing income tax deduction (up to ₹1.5 lakh) every year will have a lock-in time of 3 years. All the eligible supporters ought to be allowed the benefit of tax benefit towards Tier II account extraordinarily when this offers safer choice where subscriber can settle on a debt portion of 100% making it safer when compared with other product available of the same time tenure for example ELSS or Equity Linked Savings Schemes
The government should bring in parity between the tax treatment of employee provident fund and NPS at the time of maturity. “The maturity proceeds of EPF are completely tax-free and the subscriber is allowed to invest the cash the manner in which he wishes. Be that as it may, the NPS subscriber can just pull out up to 60% of the accumulated balance in his NPS account at the hour of retirement and for the balance, he needs to compulsorily purchase an annuity from any life insurance organization enlisted with IRDA.
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