The Budget 2024 has brought significant changes to the National Pension System (NPS), particularly affecting employer contributions and employee salaries. This announcement is set to impact how both employers and employees manage their retirement savings and tax planning.
Employer Contribution Increased to 14%
A key change in the Budget 2024 is the increase in employer contributions to the NPS. Previously, employers contributed 10% of the basic salary, but this has now been raised to 14%. This change aims to boost retirement savings for employees, although it may affect their take-home pay due to the higher contribution requirement.
Government’s NPS Scheme Popularity
The NPS scheme has gained immense popularity over the years due to its structured savings plan and tax benefits. It allows employees to contribute 10% of their basic salary towards their pension, matched by a 14% contribution from the government. This combined contribution helps employees build a substantial retirement corpus.
Tax Benefits Under NPS
Investing in NPS offers several tax benefits under different sections of the Income Tax Act, 1961. Employees can claim deductions under Section 80CCD(1) for their contributions, Section 80CCD(2) for employer contributions, and an additional deduction under Section 80CCD(1B) for contributions up to Rs 50,000.
Withdrawal and Pension Purchase
Upon maturity, NPS allows employees to withdraw up to 60% of the total deposited fund tax-free. The remaining 40% must be used to purchase an annuity, ensuring a regular pension for the retiree. This structure aims to provide financial stability during retirement.
Growing NPS Customer Base
As of May 31, 2024, the total NPS subscriber base reached 18 crore. The Pension Fund Regulatory and Development Authority (PFRDA) reported adding 947,000 new subscribers from non-government sectors in 2023-24. This surge in subscribers increased the NPS Assets Under Management (AUM) by 30.5% year-on-year, reaching Rs 11.73 lakh crore.
Conclusion
The Budget 2024’s changes to the NPS, especially the increased employer contribution, highlight the government’s focus on enhancing retirement savings for employees. The NPS continues to be a popular and beneficial scheme for long-term financial planning, offering substantial tax benefits and a structured withdrawal process to ensure a secure retirement.
