Budget 2024: The Interim Budget 2024, to be presented by FM Nirmala Sitharaman, should look to make the National Pension System (NPS) more attractive, says an expert. Raj Khosla, the Managing Director and Founder of MyMoneyMantra, suggests increasing the additional deduction for the NPS.
The founder of MyMoneyMantra told ET that in a country with over 10 crore investors, the NPS has attracted fewer than 50 lakh voluntary subscribers.The introduction of a Rs 50,000 deduction under Section 80CCD(1b) resulted in a significant increase in voluntary subscribers, he said.
However, Khosla points out that an annual investment of Rs 50,000 in the NPS may not lead to a substantial pension. With a compounded 9% return, this investment would accumulate approximately Rs 47 lakh in 25 years, providing a monthly pension of Rs 23,528. Adjusted for a 6% inflation rate, this pension would effectively be worth only Rs 5,300, he says.To address this, Khosla suggests that Budget 2024 should raise the deduction limit to Rs 1 lakh from the present Rs 50,000. This adjustment would incentivise subscribers to save more for their retirement, ultimately contributing to India’s transformation into a pensioned society, he said.
According to an analysis by ET, tax benefits wield a substantial influence on individuals’ investment decisions. Although a raised limit is expected to stimulate more substantial investments for retirement, it is important to acknowledge that the NPS already benefits from multiple tax advantages compared to other retirement savings options. Consequently, any augmentation to the deduction should be thoughtfully examined to ensure equitable treatment across diverse retirement savings instruments.
The founder of MyMoneyMantra told ET that in a country with over 10 crore investors, the NPS has attracted fewer than 50 lakh voluntary subscribers.The introduction of a Rs 50,000 deduction under Section 80CCD(1b) resulted in a significant increase in voluntary subscribers, he said.
However, Khosla points out that an annual investment of Rs 50,000 in the NPS may not lead to a substantial pension. With a compounded 9% return, this investment would accumulate approximately Rs 47 lakh in 25 years, providing a monthly pension of Rs 23,528. Adjusted for a 6% inflation rate, this pension would effectively be worth only Rs 5,300, he says.To address this, Khosla suggests that Budget 2024 should raise the deduction limit to Rs 1 lakh from the present Rs 50,000. This adjustment would incentivise subscribers to save more for their retirement, ultimately contributing to India’s transformation into a pensioned society, he said.
According to an analysis by ET, tax benefits wield a substantial influence on individuals’ investment decisions. Although a raised limit is expected to stimulate more substantial investments for retirement, it is important to acknowledge that the NPS already benefits from multiple tax advantages compared to other retirement savings options. Consequently, any augmentation to the deduction should be thoughtfully examined to ensure equitable treatment across diverse retirement savings instruments.
Finance Minister Nirmala Sitharaman is scheduled to present the interim budget for 2024-2025 on February 1. According to another report in the financial daily, the government may present a status report on NPS. The review committee, headed by Finance Secretary TV Somanathan, is hesitant to add more financial responsibilities or revert to the old pension scheme. The government might seek public opinions before finalising any decisions.