Budget 2024: NPS employers' contribution limit should be hiked from 10% to 12%, says PFRDA chief

Budget 2024 expectations: More tax benefits for NPS' private sector subscribers

Employers’ National Pension System (NPS) contribution of up to 12 percent of employees’ basic salary should be exempt from tax, the Pension Fund Regulatory and Development Authority (PFRDA) chairman Deepak Mohanty said on Friday. At present, the limit is 10 percent for subscribers enrolled under private sector individual (All-citizens' model) and corporate schemes.

“We have made a case for bringing the tax benefits on employers’ NPS contribution at par with the employees’ provident fund (EPF) contribution limit of 12 percent,” he said.

Under the EPF rules, employee and employer contributions can go up to 12 percent for basic salary and dearness allowance, if any. “The aspiration is 14 percent – in line with what the government employees get – but we hope that it will be brought at par at least with EPF to start with,” Mohanty said on the sidelines of a media meet in Mumbai.

Also read: How your employer can help you earn additional tax breaks through NPS

Employers’ contribution to NPS

Under NPS, the corporates or employers can claim tax exemption on the amount contributed towards employees’ NPS accounts. Employers’ contribution of up to 10 percent (14 percent in the case of government employees) of the salary (basic and dearness allowance) can be deducted as ‘Business Expense’ from the corporates’ profit and loss (P&L) account under section 36(1)(iv)(a) of the Income Tax Act, 1961.

Employees, too, can claim tax breaks on their employers’ contribution of up to 10 percent of their wages under section 80CCD(2), irrespective of the tax regime they choose. Overall, tax benefits on employers’ contributions across retirement schemes are capped at Rs 7.5 lakh a year.

This is in addition to tax deductions under section 80CCD(1) on own NPS contribution of up to 10 percent of salary (subject to overall 80C limit of Rs 1.5 lakh) and additional deduction of up to Rs 50,000 under section 80CCD(1B).

Growth in subscriber base, AUM

The PFRDA has set a target of enrolling 13 lakh corporate and individual (all-citizens’ model) subscribers in the financial year 2023-24. So far, the NPS ecosystem has added over 5 lakh subscribers this year.

However, the regulator is pinning its hopes on the last three months of the financial year, which tend to attract a large chunk of the subscribers, who look to make tax-saver investments during this period. The assets under management (AUM) across subscriber categories have now touched Rs 11 lakh crore, Mohanty said.

Overall, the entire NPS subscriber base, including government employees and Atal Pension Yojana (APY) subscriber base grew 16 percent - from 6.06 crore in December 2022 to 7.03 crore in December 2023.

Also read: MC Exclusive: Govt-appointed panel will explore how NPS can be improved for its employees: PFRDA Chairman Deepak Mohanty

Debt, government securities dominate AUM

According to Mohanty, equities account for just 17 percent of the Rs 11 lakh-crore AUM, while fixed income – government securities and AAA-rated corporate bonds – largely make up the balance. Although investments in REITs, InvITs and alternative funds are also permitted, their proportion remains minuscule. The total assets under management, across subscriber categories, grew nearly 28 percent to cross 10.91 lakh crore as of December 30, 2023.