Budget 2025 income tax expectations: Make NPS more attractive - here's how

Budget 2025 NPS expectations: Finance Minister Nirmala Sitharaman should look to make the National Pension System (NPS) more attractive for investors, believe financial experts. There is expectation among financial experts that in the Union Budget 2025 speech, FM Sitharaman will announce some changes in NPS.

According to Rajani Tandale, Senior Vice President, Mutual Fund, 1 Finance, India confronts a significant retirement challenge, as many individuals lack adequate financial preparation for their later years.


While the NPS offers a potential solution, it requires enhanced tax incentives to boost its attractiveness, she feels.

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According to Tandale, the Narendra Modi government should consider increasing the Section 80CCD(1B) deduction ceiling from Rs 50,000 to Rs 1 lakh. “This would encourage higher investments by taxpayers and support long-term retirement savings, especially among small savers and middle-income earners,” she told ET.

Additionally, the Section 80CCD(2) deduction limit warrants an increase, she believes. Currently set at 10% of basic salary under the old tax regime, and recently raised to 14% under the new tax regime, this ceiling should be raised to 20% of basic salary. This adjustment would enhance NPS appeal amongst the private sector workforce, she opines.

She is also of the view that the current requirement for mandatory annuity purchase within NPS deters potential investors. Introducing a systematic withdrawal option as an alternative or supplement to annuity would enable retirees to access their funds systematically while avoiding the disadvantages of annuities, including low returns and high taxation, she advocates.

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Furthermore, Budget 2025 should incorporate provisions to reduce the tax burden on annuity income, thereby enhancing post-retirement financial security, she concludes.

Expressing its view on Tandale’s recommendations, ET Wealth in its recent edition said that NPS has experienced substantial growth in its usefulness due to various enhancements in its offerings and advantages. Nevertheless, additional improvements are necessary to establish it as the leading choice for retirement savings. An increase in the tax deduction ceiling could effectively encourage individuals to allocate their funds towards the NPS.

Also See: Budget 2025

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