Union Budget 2022-23: Tax Deduction limit hiked to 14% from 10% on NPS accounts

Several tax-related announcements were made by Finance Minister Nirmala Sitharaman as she presented the Union Budget 2022 on Tuesday. While the government has not made any changes in the slabs of income tax, it proposed to increase the tax deduction limit on NPS. FM in her budget speech announced that both state and central government employees' limit of tax deduction will be increased from 10% to 14% on NPS (National Pension System) accounts.

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Disclaimer: ##Rs 60,000 are the monthly pension amounts at the assumed rate of return of 8% p.a. and 4% p.a. for unit linked insurance plans. This is an illustrative example and the returns are not guaranteed & dependent on the policy term and premium term availed along with the other variable factors. The market linked return of 60K per month is for an 18 year old investing 6k per month for 20 years in a whole life policy having policy term 82 years in which Systematic partial withdrawals start at the age of 65 years at 5% rate of withdrawal per year. The investment risk in the policy is borne by the policyholder. All Plans listed here are of insurance companies’ funds. *Tax benefits and savings are subject to changes in tax laws. All Plans listed here are of insurance companies’ funds. Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

This decision is made to support the social security benefits of state government to offer equal treatment at parity with the central government employees. The tax benefit is limited to 10% for private-sector employees. Announcing tax-related modifications, Sitharaman added, “to give an opportunity to correct an error, now taxpayers can file an updated return within two years from the relevant taxation year”.

The highlights of the Union budget 2022 are:

Tax deduction increased from 10% to 14% on NPS accounts
Presently, only the central govt. employees are entitled to claim a tax-saving benefit of 14 percent to the NPS account of an employee for the employer’s contribution
The corporate surcharge will be decreased from 12% to 7%

Union Budget 2022 has proposed to bring uniformity in the tax deduction limit on contribution to NPS, between central and state government employees.

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