Union Budget 2024: Should you invest more in NPS now in the new tax regime?
This article analyses the change in NPS-related tax deductions as per the Union Budget 2024.
This article analyses the change in NPS-related tax deductions as per the Union Budget 2024.
This article is a part of our detailed article series on Union Budget 2024. Ensure you have read the other parts here:
This article analyses the changes in Budget 2024 that impact investors investing abroad under the RBI’s Liberalised Remittance Scheme.
This article shows how you can now offset TCS against your salary’s TDS providing significant relief and improving your cash flow.
This article explains the new of the reversal of the 12.5% without indexation tax rule to allow 20% with indexation for all properties bought before 23rd July 2024.
This article helps you calculate the minimum price above which you must sell your property to pay lower taxes under the taxation rule change as per Budget 2024.
This article clarifies the indexation benefit available to property purchased before 2001 from official income tax authority sources.
This article discusses the impact on investors’ psyche due to impact on Gold price due to government policy change.
This article shows you how debt, international and gold/silver mutual funds will get taxed as per the new capital gains tax declared in the Union Budget 2024.
This article shows you how to do tax harvesting for shares and mutual funds as per the new capital gains tax declared in the Union Budget 2024.
This article analyses the most important changes affecting your portfolio as per the Union Budget 2024.
This article analyses the change in taxation of stocks and mutual funds as per the Union Budget 2024.
This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense from 1st April 2024.
This article analyses the change in taxation of real estate sales in India as per Union Budget 2024.
Source: https://www.indiabudget.gov.in/doc/budget_speech.pdf
Union Budget 2024 added a new incentive for taxpayers to switch to the New Tax Regime by increasing the deduction available under non-government employer contributions to the NPS. It raised the eligibility amount from 10% to 14% of basic pay plus dearness allowance (DA).
NPS self-contribution deduction benefit [under Section 80CCD(1B)] of up to ₹50,000/year is available only in the Old Tax Regime.
Also, Employer NPS Contribution [under Section 80CCD(2)] is available up to 10% of basic salary (plus DA) as a deduction.
NPS self-contribution deduction benefit [under Section 80CCD(1B)] of up to ₹50,000/year is NOT available in the New Tax Regime.
However, Employer NPS Contribution [under Section 80CCD(2)] is available up to 14% (up from 10% as per the 23-Jul-2024 Budget) of basic salary (plus DA) as a deduction.
To understand should you increase or start contributing in NPS:
Note: Tax-free employer contribution to EPF, NPS and Superannuation fund combined is still ₹7.5 lakhs. Beyond that, the contribution to EPF beyond this ₹7.5 lakhs will become taxable.
We are not fans of NPS in its current structure due to the forced 40% or more annuity-purchase rule and the fact that your money is locked up until age 60. We have argued this point in detail here: Is NPS the right option for your retirement planning?.
Related: Which is the best tax regime to choose from April with these new NPS changes?
A 4% extra tax deduction, since it is on your basic (plus DA), is not a substantial amount just to incentivise putting more money into NPS:
Basic plus DA | 10% of Basic | 4% extra contribution | Extra tax saving |
---|---|---|---|
5 lakhs | 50,000 | 20,000 | 6,000 |
10 lakhs | 100,000 | 40,000 | 12,000 |
15 lakhs | 150,000 | 60,000 | 18,000 |
20 lakhs | 200,000 | 80,000 | 24,000 |
In return, you are sacrificing liquidity on the 14% of the basic plus DA amount, which is not negligible at all. There are additional market-timing risks of NPS that you must be aware of: The unknown risk in NPS that few people talk about
However, if you decide to choose NPS, here are two useful articles:
This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense from 1st April 2024.
Published: 23 July 2024
13 MIN READ
This article analyses the change in taxation of stocks and mutual funds as per the Union Budget 2024.
Published: 23 July 2024
4 MIN READ
This article analyses the changes in Budget 2024 that impact investors investing abroad under the RBI’s Liberalised Remittance Scheme.
Published: 8 September 2024
4 MIN READ
This article analyses the portfolio of the Franklin India Ultra Short Duration Fund to see if there any potential red flags similar to what led to the closure of six Franklin debt funds in April 2020.
Published: 6 September 2024
5 MIN READ
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This post titled Union Budget 2024: Should you invest more in NPS now in the new tax regime? first appeared on 23 Jul 2024 at https://arthgyaan.com