With the goal of supporting macroeconomic growth, the Union Budget also aims to provide all-inclusive benefits at the microeconomic level as well, said the Union Finance Minister Smt Nirmala Sitharaman while presenting the 2022-23 Union Budget in Parliament on 1st February 2022. As a result, there were several new benefits offered for Taxpayers in India. One such benefit was a Tax Exemption Limit for NPS. In this article, you will understand the latest news as Union Budget 2022 Hike in Tax Exemption Limit for NPS.
What is NPS?
NPS stands for National Pension Scheme. It’s a defined contribution retirement savings plan that’s open to everyone who wants to take control of their financial future by making regular contributions while they’re still employed.
The National Pension System (NPS) aims to make saving for retirement a norm among its subscribers.
PFRDA-registered professional fund managers handle the NPS pension fund’s assets in a variety of securities, including government bonds, bills, debt securities, and stocks, in accordance with the authorized investment standards. As the investment’s profits increase, these contributions will continue to rise and increase.
Subscribers may opt to utilize their pension savings to acquire a life annuity from a PFRDA-approved Life Insurance Company at the time of customary withdrawal from NPS, in addition to taking some of their retirement savings as a lump-sum payment.
Benefits of NPS
There are several benefits of NPS. Some of the most important benefits of NPS are as follows.
- A part of the NPS is invested in stocks (this may not offer guaranteed returns). However, it provides significantly larger returns than other classic tax-saving investments such as the EPF Registration or PPF.
- Any individual who is an NPS subscriber may claim a tax advantage under Section 80 CCD (1) up to a maximum of Rs. 1.5 lac under Section 80 CCE.
- Under section 80CCD, NPS members are eligible for an extra deduction of up to Rs. 50,000 for investments in NPS (Tier I accounts) (1B). This is in addition to the Rs. 1.5 lakh deduction permitted under section 80C of the Income Tax Act, 1961 while ITR Filing.
- If you are part of an NPS, it is essential to keep investing until the maturity level of 60 years. However, if you have been investing for at least three years, you can take up to 25% of your funds for certain reasons.
Hike in Tax Exemption Limit for NPS: Union Budget 2022-23
Finance Minister Nirmala Sitharaman, who presented the Union Budget 2022-23 in Parliament on Tuesday, announced to raise the tax benefit for state government employees’ contributions to their NPS accounts from 10% to 14%.
As a consequence, government employees of state and local governments will be eligible to claim a tax exemption of 14% on the NPS contributions made by their employer, which is the state government. This tax break will start in FY 2022-23.
Current Status of NPS Exemption Limit for Central Govt. Employes
Currently, only people who work for the central government can get a tax exemption of 14% for the money their employers put into their NPS account.
Tax Exemption Limit for NPS of Private Sector
People who work in the private sector can get a tax exemption of only 10%.
The increase in the tax deduction ceiling in NPS for state government employees to 14 percent, brings in line with their central government counterparts. Hence, State Government Employees can benefit while income tax return filing.
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