No change in new pension scheme tax relief
NEW DELHI: Investment in New Pension Scheme (NPS),it seems, has not been treated on par with other tax savings schemes like life insurance policies, employees provident fund (EPF), public provident fund (PPF), and equity-oriented mutual funds and other such tax saving instruments under section 80C.
Maximum deduction from taxable income under 80C has been increased from Rs 100,000 to Rs 150,000. Till 2013-14, employees’ contribution in NPS was part of the overall limit of Rs 100,000 under section 80C.
Therefore, as 80C cap has been enhanced to Rs 1,50,000, it was believed that the limit on deduction from taxable income against investment in NPS by employees will also automatically increased to Rs 1,50,000.
However, that does not seem to be the case. Director (tax) with tax consultancy firm KPMG, Parizad Sirwalla, said the deduction with respect to employee’s contribution in NPS is restricted to Rs 100,000. And, it will not be over and above the enhanced cap of Rs 1,50,000 on deductions from taxable income under section 80C. It will continue to be the part of 80C, but will have its own cap of Rs 1,00,000 within 80C limit.
According to the rule under section 80CCD, an individual employed by the central government or any other employer on or after January 1, 2004 are allowed deduction from his taxable income equal to amount invested in NPS, subject to certain condition. The rules prescribe that the amount of deduction can’t be more than 10% of his gross total income.
Interestingly, the Budget papers said the limit of deduction under Section 80C was raised to encourage household savings.
In view of the same, consequential amendments are proposed in sections 80CCE and 80CCD of the Act. But, it seems no amendment in the Act has been made so far.
However, such omission would not make much difference for tax payers as the limit of Rs 1,50,000 gets exhausted easily since 80C not only includes a number of investment instruments but also includes the payment of school tuition fees paid for two children and repayment of the principle of a home loan. A person who earns a salary of Rs 10,00,000 alone can exhaust the limit of Rs 1,00,000.
His other investments in instruments like life insurance, children tuition fees, repayment of home loan are likely to take his total savings (from tax savings instruments) beyond Rs 1,50,000.