PPF vs NPS: How FM Nirmala Sitharaman can make pension scheme more attractive in Budget 2024?

National Pension System (NPS) is a Govt of India-sponsored program, which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). An NPS subscriber invests in the capital market (equity, govt securities, corporate bonds, and alternative assets) as per their respective risk appetite to build up his retirement corpus.

Public Provident Fund (PPF) is a government-backed savings vehicle with fixed returns, which is set by the Government every quarter. 

NPS scheme is a retirement-specific savings instrument, while usually people open PPF accounts with long-term goals.

What changes should be made to NPS?

According to Mumbai-based tax and investment expert Balwant Jain, to make NPS attractive, the government should treat this product like Public Provident Fund (PPF), there should be no step-motherly retirement for NPS subscribers as both these investments are for the long-term with the sole purpose of retirement benefits.

PPF enjoys the status of EEE. EEE refers to tax-free status. “NPS is not fully tax-exempt presently. You can claim a deduction for contributions made by you toward your NPS account, under Section 80CCD (1) and 80CCD (1B). The income accrued during the continuance of the account is also tax-free. However, at the time of maturity of the NPS account only 60% of the corpus accumulated can be withdrawn tax-free and for the balance 40% you have to buy an annuity from a life insurance company. The annuity received is fully taxable in the year of receipt,” said Balwant Jain

“We suggest increasing the limit of NPS to 1,00,000/- for both tax regimes,” said Kurian Jose, CEO, Tata Pension Management

“For subscribers under corporate NPS, the current tax exemption allows up to 10% of the basic salary under Sec 80 CCD (2) of the Income Tax Act. We recommend raising this limit to 12%, aligning it with Provident Funds, and subsequently to 14%, in line with the allowance for government sector employees. This aligns with the longstanding suggestion of PFRDA,” said Kurian Jose

Finance Minister Nirmala Sitharaman is set to present the Union Budget 2024 for the fiscal year 2024-25 in the Lok Sabha on February 1.

In FY 2020-21, the Narendra Modi government introduced a new tax regime which was made the default tax regime for salaried individuals who have not declared their choice from 1 April 2023. The govt is trying to make the new regime more attractive. While presenting Budget 2023, Nirmala Sitharaman allowed a standard deduction of 50,000 and tax rebates for those opting new tax regime.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.



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Published: 19 Jan 2024, 03:01 PM IST

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