New Tax Regime and NPS: Registration of overall subscribers dropped in FY24, PFRDA data shows

The National Pension System, under the Pension Fund Regulatory and Development Authority, saw less number of registrations in FY24 perhaps due to the New Tax Regime. The NPS has progressively advanced as a favoured mechanism for retirement planning across India, owing to its well-organised strategy towards guaranteeing financial stability upon retirement. 

The pension scheme comprises government, private employees and Atal Pension Yojana subscribers. The latest PFRDA data shows that the growth in overall subscribers has gone down to 16.3%. The total registrastion were at over 7. 3 crore. Within this, the corporates' registration moderated to 16. 1%, the slowest since 2020-21. Under the NPS, around 7.5% are private sector contributors.

The all-citizen model, predominantly comprising individuals, experienced a more pronounced deceleration in growth pace to 20.3% in FY24 as compared to its previous rates of 29% in FY23 and exceeding 30% in the FY22. 

Experts and industry professionals have attributed this slowdown in registration due to New Tax Regime, the Times of India reported on Friday. The new tax regime is the default tax regime, however, tax payers can choose the tax regime (old or new) that they think is beneficial to them. Union Finance Minister Nirmala Sitharaman made this annoucement in Union Budget 2023-24. 

The new tax system, introduced in 2020, has lower tax rates but fewer deductions and exemptions. 

The NPS is one of the schemes that can avail exemptions under both tax regimes. Under the old tax regime, NPS offers tax benefits under three sections of the Income Tax Act, 1961. Under the new tax regime, a deduction under Section 80CCD (2) of the Income Tax Act by investing in NPS can be availed. This deduction from gross total income can be claimed if the employer makes a contribution to the NPS account on behalf of the employee.

Under the new tax regime, the NPS-related deduction under Section 80CCD (2) of the Income-tax Act, 1961, was allowed under the New Tax Regime. Under this regime, the deduction is on the employer's contribution to the employee's NPS account. Section 80CCD(2) applies to only salaried individuals and not to self-employed individuals. The deductions under this section can be availed over and above those of Section 80CCD(1).

Under the Old Tax Regime, Section 80CCD (1) of the Income-tax Act, 1961, a deduction from taxpayers' gross total income for contributions made to the NPS is allowed. Both salaried and self-employed taxpayers can avail of the deduction under Section 80CCD(1). The maximum deduction under this section is — 10% of your salary (Basic + DA) for salaried individuals or 20% of gross total income for self-employed. The upper limit is Rs 1.5 lakh in a financial year.