Will Budget 2025 Extend Rs 50,000 NPS Deduction Under Section 80CCD(1B) to New Tax Regime? – News18
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Currently, tax benefits for NPS are available under the old tax regime. Will FM Sitharaman extend this deduction to the new tax regime?
Income Tax Expectations Budget 2025
The National Pension Scheme (NPS) has become one of the most popular retirement tools in India, with a large subscriber base and a proven track record of 9-12% returns in the past. The scheme offers flexibility for investors, allowing them to choose between an actively managed portfolio or a pre-decided one, giving them exposure to various asset classes.
Benefits Under the Old Tax Regime
Currently, the tax benefits for NPS are available under the old tax regime. Investors can contribute up to Rs 1.5 lakh under Section 80CCE, which provides tax exemption on annuity purchases or superannuation at retirement under Section 80CCD.
Moreover, investors can withdraw up to 60% of their corpus as a lump sum after retirement, with the remaining 40% being used for purchasing an annuity. If the corpus is less than or equal to Rs 5 lakh, investors can withdraw the entire amount tax-free, without the need to purchase an annuity.
Additionally, there is a tax deduction of up to Rs 50,000 under Section 80CCD(1B), on top of the Rs 1.5 lakh limit under Section 80CCE. A significant change announced in the 2024 Budget is the increase in the employer’s contribution to NPS, raised to 14% from 10% of the salary, effective from April 1, 2025.
Will the NPS Deduction Under Section 80CCD(1B) Be Included in the New Tax Regime?
Experts believe that the inclusion of the NPS deduction under Section 80CCD(1B) in the new tax regime could encourage more individuals to shift to the new system. As NPS gains popularity for retirement planning, allowing a tax benefit for contributions up to Rs 50,000 would make the new tax regime more attractive.
The new tax regime, designed with lower tax rates and fewer deductions, aims to simplify the tax process and encourage more taxpayers to opt for it. However, it currently allows fewer tax-saving opportunities compared to the old tax system.
Aurelia Menezes, Partner at King Stubb & Kasiva, Advocates and Attorneys, believes that “The old income tax regime allows for a deduction of up to INR 50,000 for contributions made to the National Pension Scheme (NPS), which has led some taxpayers to prefer the old tax regime over the new one. While the new regime offers lower tax rates, it would be ideal for the budget to incorporate NPS deductions into the new regime to make it more appealing. As the country anticipates a positive budget this year, there are high hopes that the new tax regime will support retirement planning by continuing the NPS deduction.”
Swapnil Aggarwal, Director at VSRK Capital, explains, “The Section 80CCD(1B) NPS tax deduction of ₹50,000 is becoming increasingly valuable as more people focus on retirement. This deduction is fully available under the old tax regime, but many taxpayers are questioning whether it will be introduced in Budget 2025.”
Aggarwal adds, “The new tax regime was designed to be beneficial with lower tax rates, but the trade-off is the loss of numerous tax exemptions and deductions. Although the new structure has been adopted by many, there are no additional incentives like the NPS deduction to encourage savers. This has led to frustration among individuals focused on financial security, and many are hopeful that the government will address this in Budget 2025.”
CA Ruchika Bhagat, MD at Neeraj Bhagat & Co., states, “The upcoming Union Budget 2025 has the potential to transform tax benefits under the new tax regime. Financial experts and industry leaders are advocating for the inclusion of the Rs 50,000 NPS deduction under Section 80CCD(1B), which is currently available only in the old regime. Such a move would boost retirement planning and align the new regime with taxpayer expectations. While there have been no official announcements yet, this reform would make the new tax regime more attractive and promote financial security for individuals. All eyes are now on the finance ministry to introduce measures that encourage long-term savings.”
Sumeet Agrawal, Associate Partner at Economic Laws Practice, concurs, stating, “Given the government’s focus on encouraging taxpayers to shift to the new tax regime, providing NPS-related tax benefits under the new system seems very likely.”
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