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.
Union Budget 2024: Should you invest more in NPS now in the new tax regime?
Posted on 23 Jul 2024
Author: Sayan Sircar
8 mins read
📢Join 3500+ readers on WhatsApp and get new post notifications!
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:
-
Form 12BAA: How to reduce TCS on foreign remittances and foreign travel after 1st October 2024?
This article shows you the method for lowering the effect of Tax Collected at Source (TCS) on foreign remittances and travel via RBI’s Liberalised Remittance Scheme (LRS) as per new rules introduced under Union Budget 2024.
-
Budget 2024: How New Changes Make International Investing under LRS Easier for Indians?
This article analyses the changes in Budget 2024 that impact investors investing abroad under the RBI’s Liberalised Remittance Scheme.
-
Budget 2024 TCS Changes: Minimise the Impact Of TCS on Your Foreign Stocks and other LRS Investments
This article shows how you can now offset TCS against your salary’s TDS providing significant relief and improving your cash flow.
-
Budget 2024 taxation rule reversal: grandfathering rule brings back indexation benefit to properties acquired before July 2024
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.
-
10L to 80L in 23 Years: How to Calculate Sale Price of Property to Pay Lower Taxes after Budget 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.
-
Budget 2024: Will indexation benefit apply to property purchased before 2001?
This article clarifies the indexation benefit available to property purchased before 2001 from official income tax authority sources.
-
Budget 2024: Should you still invest in SGB after Gold import duty cut?
This article discusses the impact on investors’ psyche due to impact on Gold price due to government policy change.
-
Budget 2024: How will international, debt and gold/silver funds get taxed going forward?
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.
-
Budget 2024: How to do tax harvesting for your shares and mutual funds?
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.
-
Union Budget 2024: What are the most important changes that will now affect your portfolio?
This article analyses the most important changes affecting your portfolio as per the Union Budget 2024.
-
Union Budget 2024: What are the changes in capital gains tax for Stocks and Mutual Funds?
This article analyses the change in taxation of stocks and mutual funds as per the Union Budget 2024.
-
Union Budget 2024: which is the best tax regime to choose from 1st April 2024? (July 2024 update)
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.
-
Budget 2024: A Surprise in Real Estate Sales due to Indexation Benefit Removal: Is it good or bad?
This article analyses the change in taxation of real estate sales in India as per Union Budget 2024.
📚 Topics covered:
- What did Union Budget 2024 change about NPS-related tax deduction?
- What tax benefits are there for NPS in the Old Tax Regime as per Union Budget 2024?
- What tax benefits are there for NPS in the New Tax Regime as per Union Budget 2024?
- Should you now invest in NPS because there is more tax deduction allowed as per Union Budget 2024?
What did Union Budget 2024 change about NPS-related tax deduction?
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).
What tax benefits are there for NPS in the Old Tax Regime as per Union Budget 2024?
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.
What tax benefits are there for NPS in the New Tax Regime as per Union Budget 2024?
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.
Should you now invest in NPS because there is more tax deduction allowed as per Union Budget 2024?
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:
Related Articles
- Union Budget 2024: What are the most important changes that will now affect your portfolio?
- Budget 2024: Will indexation benefit apply to property purchased before 2001?
- Union Budget 2024: which is the best tax regime to choose from 1st April 2024? (July 2024 update)
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.For resident Indians 🇮🇳:
For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:
Share on WhatsApp: To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:If you liked this article, please leave us a rating
The following button will take you to Trustpilot:Discover an article from the archives
Previous and next articles:
Latest articles:
Topics you will like:
Next steps:
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourself.Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
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
We are currently at 503 posts and growing fast. Search this site: Copyright © 2021-2024 Arthgyaan.com. All rights reserved.