Union Budget 2015-16: Additional Rs 50,000 deduction for NPS investments

Finance Minister Arun Jaitley has given a big boost to the National Pension System (NPS) by allowing a separate deduction of Rs 50,000 over and above the Section 80C limit of Rs 1.5 lakh.

"To provide social safety net and the facility of pension to individuals, an additional deduction of Rs 50,000 is proposed to be provided for contribution to the New Pension Scheme under Section 80CCD.

This will enable India to become a pensioned society instead of a pensionless society," the finance minister said in his Budget speech.

The Budget also increased the limit for contribution to pension plans-insurance pension, annuity plans and NPS-from Rs 1 lakh to Rs 1.5 lakh. In the previous Budget, while the finance minister had increased the Section 80C limit from Rs 1 lakh to Rs 1.5 lakh, he had kept the deduction limit for pension plans at Rs 1 lakh. This year he has removed that anomaly.

Sumeet Shukla, chief executive officer, HDFC Pension, said that the move will not only attract new subscribers but also more investments from existing customers.

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"The other good thing about the announcement is that now more people will talk about NPS. The biggest problem for us has been lack of awareness about NPS. Just imagine the kind of buzz the new deduction limit will create for NPS," he said.

The separate deduction limit also means that the NPS will not have to compete with other pension products.

"At present, NPS has to compete with insurance, mutual funds, PPF, EPF, etc. The separate deduction limit will make it more attractive," says Sandeep Shrikhande, CEO, Kotak Pension Fund.

In another important move, the finance minister has given employees the option to chose between NPS and EPF. It will no longer be mandatory for employees to contribute to EPF. Further, contribution to EPF has been made optional for employees below a certain income, without affecting the employer's contribution.

These amendments will take effect from 1 April 2016 and will, accordingly, apply from assessment year 2016-17.

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