Budget 2024 Wishlist! Will Employers' NPS Contribution Limit and Tax Benefits Increase?

Budget 2024: According to Deepak Mohanty, head of the Pension Fund Regulatory and Development Authority (PFRDA), employers should be exempt from taxation on their National Pension System (NPS) contributions, which can amount to up to 12% of an employee's base pay. Currently, subscribers engaged in corporate and private sector individual (All-citizens' model) schemes are limited to ten percent.

Equalizing Tax Benefits with EPF Contribution

“We have made a case for bringing the tax benefits on employers’ NPS contribution at par with the employees’ provident fund (EPF) contribution limit of 12 percent,” he said. Employee and employer contributions under the EPF regulations may total up to 12% of basic salary and any applicable dearness allowance.

“The aspiration is 14 percent – in line with what the government employees get – but we hope that it will be brought at par at least with EPF to start with,” Mohanty said . Employers or corporations may be able to claim a tax exemption on the money they contribute to their employees' NPS accounts under the NPS. Under section 36(1)(iv)(a) of the Income Tax Act, 1961, employers may deduct up to 10% (or 14% for government employees) of the basic and dearness allowance as "Business Expense" from the profit and loss (P&L) account of their corporate entities.

Annual Limit on Employers' Contributions

Regardless of the tax regime they select, employees are also eligible to claim tax reductions on their employers' contributions of up to 10% of their wages under section 80CCD(2). The total annual tax benefits on employers' contributions to all retirement plans are limited to Rs 7.5 lakh.

This is on top of the tax deductions under section 80CCD(1) on personal NPS contributions of up to 10% of salary (subject to an overall Rs 1.5 lakh 80C limit) and further deductions under section 80CCD(1B) of up to Rs 50,000.

Equity Composition in AUM

Just 17% of the Rs 11 lakh crore AUM is made up of equities, according to Mohanty; the majority of the money is made up of fixed income, which includes AAA-rated corporate bonds and government securities. While investments in alternative funds, InvITs, and REITs are also allowed, their share is still quite small. As of December 30, 2023, the total assets under managed across all subscriber categories had increased by over 28% to surpass 10.91 lakh crore.

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