Union Budget 2024: Exempt annuity income from tax, allow systematic withdrawal as an alternative to annuities: Axis Pension Fund CEO | Simply Save

With Union Budget 2024 less than 15 days away, it’s the season for Budget wishlists and expectations.

The February 1 Budget is likely to be only a vote-on-account ahead of general elections in April and May. However, the break in convention in interim Budget 2019 - when the tax rebate limit was hiked to Rs 5 lakh, among other announcements – holds out hope for tax-payers.

Should changes be announced in the interim Budget, the National Pension System (NPS) is expected to be a key beneficiary, say experts.

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

It has been in the news for several reasons. The Pension Fund Regulatory and Development Authority (PFRDA) has requested the government to increase the tax deduction limit on employers’ contribution to employees’ NPS from 10 percent to 12 percent. Industry-watchers say the committee to look into the concerns of government employees with respect to the National Pension System is likely to submit its report soon.

Moneycontrol’s Preeti Kulkarni caught up with Sumit Shukla, MD and CEO, Axis Pension Fund to understand his Budget expectations and why NPS deserves a special treatment in terms of offering tax benefits even under the new, minimal exemptions regime. Here are the key takeaways from the interaction:

-  The report by the committee to look into government employees’ concerns around NPS could be submitted during the Budget session. Some part of the report will reflect in the Budget announcements.

-   NPS facilitates exposure to equities, which can yield higher returns and help build a larger corpus over the long-term to ensure comfortable retirement. This gives NPS an edge over OPS (old pension system) for government employees.

-   If the tax deduction on employers’ contribution to employees’ NPS is increased to 14 percent, it will bring private sector employees at par with the government employees. It will ensure a bigger retirement corpus for them.

Also read: Budget 2022: State government employees to get NPS tax benefits at par with their central peers

-  PFRDA’s request that it be hiked to at least 12 percent, to bring it on par with the employees’ provident fund (EPF) contribution, is also pertinent.

- The tax deduction on employers’ contribution to employees’ NPS is already available under the new regime, so there is no reason why other NPS-linked tax benefits should not find a place.

- Given the importance of creating a social security net for Indians, push to NPS in the form of tax benefits is essential.

- The deduction of Rs 50,000 under section 80CCD(1B) should be increased to Rs 1 lakh and allowed under the new regime as well.

- Annuity income should be tax-free. The government can work out a mechanism where the exemption is linked to income slabs.

- The exemption will hold great appeal for many individuals who are on the fence at present due to the forced annuitisation of 40 percent of their corpus at vesting.

- Mandatory annuitisation and taxation of that income is not a perfect approach

- An amendment to the NPS Act to allow systematic withdrawal as an alternative to annuitisation is needed to boost NPS further.

-  The cap of Rs Rs 7.5 lakh on employers’ contribution to EPF, NPS and superannuation funds needs to be relaxed.