Pension Scheme: Public sector undertakings are encouraged to join NPS, Ministry of Finance sends letters

The Department of Public Enterprises (DPE), Ministry of Finance has written to various government ministries and departments to sensitize Central Public Sector Enterprises (CPSEs) on the benefits of adopting the National Pension Scheme (NPS). By the last quarter of FY24, 76 CPSEs had adopted NPS to extend retirement benefits to their employees.

According to a report by Hindu Businessline, the latest letter has been sent to the CEOs of around 120 CPSEs.

NPS has been made mandatory for all central government employees (except armed forces) who joined service on or after January 1, 2004. From May 1, 2009, NPS is available to every citizen on a voluntary basis, including enterprises.

NPS assets under management (AUM) recorded a 27 per cent year-on-year growth to Rs 11.89 lakh crore as on May 4, 2024. Total net asset value, including Atal Pension Yojana (APY), also witnessed an increase when compared with an end-March 2024 level of Rs 11.73 lakh crore. Atal Pension Yojana (APY) was launched on June 1, 2015 for workers in the unorganized sector.

Number of new NPS and APY subscriber registrations by May 6 this year. amounted to 82,061, according to PFRDA data.

As of May 4, the number of subscribers in the non-government sector increased year-on-year by 8.76 thousand, while in the government sector the increase was only 7.14 thousand.

In FY24, 9.47 lakh new subscribers were adopted by NPS from the non-government sector. Of these new subscribers, 8.10 lakh were part of the ‘all citizens model’ and 1.37 lakh were corporate employees.

The overall strong growth in NPS assets in recent years has been driven by both strong equity markets and a growing NPS subscriber base as more working-age Indians take retirement planning seriously.

The non-government sector saw a 37.89% year-on-year increase in NPS assets to Rs 2.32 lakh crore as of May 4. On the other hand, the NPS assets of the government sector increased by 24.45% to Rs 9.16 lakh crore. The number of new government employees who joined the NPS in FY 2023-24 was 7.10 lakh.

The corporate component is voluntary and includes people working, among others, in public sector organizations, limited liability companies and public sector banks.

The corporate component of the program experienced a downturn in the last fiscal year. This decline can be attributed to changes in the tax framework; unlike its predecessor, the new system does not offer incentives to contribute to a pension plan. Earlier, corporate sector employees with annual earnings up to Rs 7 lakh could reduce their taxable income by investing in NPS.

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

In the new tax system, deduction related to NPS under Art. 80CCD(2) of the Income Tax Act, 1961 was allowed under the new tax regime. Under this system, deduction is made from the employer’s contribution to the employee’s NPS account. Section 80CCD(2) applies only to employed persons and not to self-employed persons. Deductions under this section can be availed independently of the concessions provided under section 80CCD(1).