The budget can incentivize your post-retirement savings plan
NEW DELHI: Salaried taxpayers can receive special attention in Budget 2020-21 as the ministry of finance is studying a proposal that would double the tax-free contribution limit to the National Pension Plan (NPS) of the current Rs 50,000 to Rs 1 lakh per year.
The changes have been suggested by the pension sector regulator, the Pension Fund Regulatory and Development Authority (PFRDA), to attract public savings to pension plans that would constitute the backbone of post-retirement social security For millions of Indians.
Currently, an individual can save up to Rs 1.5 lakh per year under Section 80 C of the Income Tax Law (IT) by making investment insurance plans and some other specific instruments, including the purchase of a plan pensions under the NPS.
An additional self-contribution (up to Rs 50,000) under section 80CCD (1B) is available as a NPS tax benefit. This will double to Rs 1 lakh there by increasing the total amount of tax savings to Rs 2.5 lakh per year.
The sources said the finance ministry is actively analyzing the suggestions to help mobilize greater pension-related savings and could announce them as part of the budget proposals for 2020-21.
In addition to reinvigorating investment in NPS by doubling the tax benefit under the scheme, sources said that Budget may also propose bringing all pension related products being offered by insurance firms under the ambit of PFRDA.
Currently, the PFRDA only regulates the NPS, while the pension products of other insurers in the public and private sector are under the competence of the Insurance Regulation and Development Authority (IRDA).
Sources said that there is also a thinking on reducing the income tax rate for individuals who foregoes exemptions as has been done in the case of corporate tax assesses. However, discussion on this is incomplete and any decision could only be reflected in the Budget .
Finance Minister Nirmala Sitharaman announced at the end of last year corporate tax rate cuts as part of measures to recover the growth of the economy. The government reduced the corporate tax rate to 22 percent from 30 percent for existing companies for those who agree to waive all exemptions. It also reduced the rate to 15% from 25% for new manufacturing companies.