The National Pension System (NPS), a cornerstone of retirement planning for millions of Indians, is facing a significant challenge under the country's new tax structure. The CEO of Axis Pension Fund, a leading player in the sector, has made a strong appeal to the government for intervention in the upcoming Union Budget.
A Call for Reviving NPS Appeal
Sumit Shukla, the Chief Executive Officer of Axis Pension Fund, has publicly stated that the NPS is "suffering" under the new tax regime introduced in recent years. The core of the issue lies in the shift of tax benefits. Under the old tax system, subscribers enjoyed an exclusive, additional tax deduction of Rs 50,000 under Section 80CCD(1B), over and above the Rs 1.5 lakh limit of Section 80C.
This unique advantage was a major selling point for the pension scheme. However, the new tax regime, which offers lower slab rates but fewer deductions, does not provide this specific benefit for NPS contributions. This has diminished the scheme's relative attractiveness for new subscribers who opt for the new tax structure.
The Proposed Budget Solution
To address this growing concern and reinvigorate participation, Shukla has proposed a concrete solution for Finance Minister Nirmala Sitharaman to consider in the forthcoming budget. He advocates for the creation of a dedicated tax benefit of Rs 50,000 for NPS under the broader Section 80C umbrella.
This move would effectively restore the tax advantage for NPS subscribers, making it competitive once again. The proposal aims to create a level playing field where long-term retirement savings through NPS are incentivized, regardless of which tax regime an individual chooses. Shukla emphasized that this step is crucial to boost the country's pension coverage and ensure adequate retirement corpus for the working population.
Broader Implications for Retirement Planning
The appeal from a top pension fund CEO highlights a critical gap in the current financial planning landscape. The NPS was designed to provide a structured, regulated, and market-linked avenue for building a retirement fund. Its perceived decline due to tax policy changes could have long-term consequences for the financial security of India's aging workforce.
Industry experts echo the sentiment that specific incentives are needed to promote voluntary pension savings. Without such measures, there is a risk that individuals might prioritize short-term savings or investments with different risk profiles over dedicated retirement products. The upcoming Union Budget, expected to be presented in July 2024, is now being watched closely by the financial sector for potential reforms in this area.
The integration of an NPS-specific deduction within Section 80C is seen as a balanced approach. It would simplify the tax structure while preserving the government's objective of promoting long-term savings and reducing future fiscal liability on social security. The ball is now in the government's court to decide whether to heed this call and provide a much-needed boost to the National Pension System.
