How did the National Pension System become more attractive under the new tax regime?

The Union Budget 2024 increased the tax benefit on New Pension Scheme (NPS) payments and added a new option to the system for minor children. The government is planning to increase the deduction allowed under Section 80CCD(2) (employer’s contribution toward NPS) from 10% to 14%.

This section allows you to contribute 10% (now 14%) of your basic salary to the National Pension System without paying any taxes. The government employees were already eligible for the 14% deduction, but now the private sector is included under it too.

The higher limit under Section 80CCD(2) is only available to those who opt for the new tax regime.

Those who opt for the old tax regime are eligible for three deductions under Sections 80CCD (1), 80CCD (1B) and 80CCD (2), the limits for which are ₹1.5 lakh, ₹50,000 and 10% of basic pay, respectively.

According to experts, this may make NPS more attractive.

"The NPS proposals in the budget take significant steps towards the government's goal of making India a pensioned society by 2047," Sriram Iyer, CEO of HDFC Pension Management Company, told The Economic Times.

Additionally, the government has announced a new scheme, NPS Vatsalya, to promote long-term savings for children by their parents. Under the scheme, parents and guardians can contribute money in the name of their minor children who are below the age of 18. Once they turn 18, the plan can be smoothly transitioned into a normal NPS account.