After the Modi government came to power for the third consecutive time, the expectations of individual taxpayers have increased significantly from the full budget to be presented on July 23, 2024. This time the budget is expected to focus on the middle class. In this budget, it is expected that many big announcements can be made by the government to provide relief to the National Pension Scheme (NPS) members. In this budget, the tax exemption limit on NPS contribution can be increased to 12 percent, currently it is 10 percent.

Benefit of deduction under the old regime

Investment in NPS (National Pension Scheme) gets the benefit of deduction of income tax under the old regime. It is a saving scheme run by the government to provide security in old age. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The money deposited in it and the interest received on it is tax free. But a little tax is levied while withdrawing the money. Now PFRDA has recommended increasing the tax exemption. The regulator says that in terms of tax, there should be equal opportunities for companies and employers contributing to NPS just like EPFO, right now there is inequality in it.

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Facility to deposit up to 10% of salary

Under NPS (National Pension Scheme), salaried class people can deposit up to 10% of their salary. Businessmen can deposit up to 20% of their total earnings. This is a benefit available under section 80CCD(1) of the Income Tax Act. In the old tax regime, this can be clubbed with the limit of Rs 1.5 lakh available under section 80C. If you are in the old tax regime, you can additionally avail deduction of up to Rs 50,000 on the amount voluntarily deposited in NPS. This is available under section 80CCD(1B) of the Income Tax Act.

Two benefits of increasing the limit of NPS

In Budget 2024, the additional deduction of up to Rs 50,000 that salaried taxpayers get for voluntary contribution to NPS is available only under the old tax regime. It is expected that the government will implement this deduction in the new tax system as well. There will be two benefits of this. First, taxpayers will be able to get the benefit of additional deduction even in the new tax regime. Second, along with the new tax regime, there will be more investment in retirement schemes as well.

If the contribution increases, the in-hand salary will be less!

Currently, deduction regarding employer’s contribution (maximum 10%) is given under both the old and new tax regimes. The government can consider increasing this limit to 12%. If this happens, it will be like a discount of up to 12% in PF contribution. This can benefit all salaried class taxpayers. However, due to increase in employer’s contribution, the amount of salary received by the employee may be less. Efforts are now being made to make the new tax regime the preferred tax regime. In this, you get a lower tax rate, but for this you have to give up the exemptions on some things.

Apart from this, the government can consider increasing the limit of standard deduction of Rs 50,000 available under the new tax regime to Rs 75,000. This will benefit the salaried class, irrespective of which tax regime they have selected. In view of inflation and rising prices, it can be implemented by the government in Budget 2024. To make the new tax regime more attractive, the government can consider some changes.

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However, economists say that amid the demand to implement the old pension scheme, there is hope of making NPS (New Pension System) attractive along with some separate tax exemption for women. Besides, there is also a possibility of giving some relief to the employed and middle class by increasing the amount of standard deduction in the election year. Finance Minister Nirmala Sitharaman will present the interim budget for 2024-25 in Parliament on February 1. This is his sixth budget.

N R Bhanumurthy, a renowned economist and currently vice-chancellor of the Bengaluru-based Dr BR Ambedkar School of Economics University, said the upcoming interim budget is unlikely to be populist, given the government’s past stance. He said, however, there are expectations that in view of the old pension scheme becoming a political issue in many states, the government may possibly make some announcement in the budget to make the pension system (NPS) attractive.

Old pension system implemented in some states

It is noteworthy that the old pension system has been implemented in some states including Punjab and Rajasthan. Other states and central employees are also demanding implementation of old pension. In view of this, the government had formed a committee in April last year under the chairmanship of Finance Secretary TV Somanathan to review and improve the National Pension System (NPS). The committee will probably submit its report at the end of this month.

Sudipto Mandal, chairman of the Center for Development of Studies, also said, past experience shows that this government has followed fiscal policies. For example, even in the election year 2019, not much populist schemes and expenditure were resorted to. So I don’t expect too many populist schemes in the upcoming budget.

PM Kisan Samman Nidhi will remain intact

However, old schemes like Kisan Samman Nidhi can be retained. Regarding relief on the tax front, he said, employed and middle class may get some relief on the income tax front. Some relief is expected to be provided by increasing the amount of standard deduction. At present there is an exemption of Rs 50,000 under standard deduction.

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