Budget 2022: Tax deduction hiked from 10% to 14% on NPS accounts

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Finance Minister Nirmala Sitharaman in her budget speech announced that both Centre and States govt employees' tax deduction limit will be increased from 10% to 14% on NPS accounts.

"Tax deduction limit in NPS to be increased from 10 per cent to 14 per cent to help the social security benefits of State Government employees to provide equal treatment at par with the Central Government employees," FM Nirmala Sitharaman said in her while presenting the Union Budget 2022-23.

Currently, only central government employees are eligible to claim tax benefit of 14% for the employer’s contribution to the NPS account of an employee. In case of private-sector employees, the tax benefit is limited to 10%.

Announcing income tax-related changes, Sitharaman said, "to provide an opportunity to correct an error, taxpayers can now file an updated return within 2 years from the relevant assessment year."

Notably, National Pension System has emerged as a popular investment scheme for retirement. Investment in National Pension System (NPS) is offers tax benefit under three different sections of the Income-tax Act, 1961.

Investment up to Rs 1.5 lakh in NPS in a financial year is eligible for deduction under section 80CCD (1). This deduction comes under the overall limit of Rs 1.5 lakh allowed under section 80C.

The Finance Minister also announced that the corporate surcharge will be reduced from 12% to 7%. The Finance Minister has also proposed to tax any income from transfer of any virtual digital asset at 30%.

No deduction in respect of any expenditure or allowance will be allowed while computing such income, except cost of acquisition, Sitharaman said.

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