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February of 2021 saw the release of the union budget under the guidance of Finance Minister Nirmala Sitharam. The theme of the budget received a lukewarm reaction from the general public due to several reasons. The unofficial theme of the budget was to increase the possibility of becoming more self-reliant and self-sustaining.
The basis of the union budget 2021 rests on six pillars. These pillars are the categories that would see development in the coming financial year. The pillars are:
1. Developing the quality of sanitation for better health and wellbeing.
2. Increase in the financial and physical capital as well as infrastructure.
3. Inclusive development for aspirational India
4. Enhancing the human capital
5. Encouragement of research and development.
6. Cutting down on unnecessary government costs but increasing the government's presence in areas of development.
Major aspects of the union budget 2021
1. Sanitation and healthcare
The government has vastly increased the amount that they will spend on developing different sectors of the economy. This was not a surprise as the economy has seen a plateaued growth due to the recent pandemic.
New additions in the Healthcare sector includes:
The budget aims to develop alternative sources of transport like railways and seaports to reduce the burden on the land.
3. Tax reforms
4. Fiscal fituations
With the recent events of the pandemic, many states have been going into debt. Keeping this in mind, the union budget aims to assist the states during this time.
5. Education and human capital
6. Research and development
7. Agricultural development
Changes in the union budget 2021 have also been reflected in the Indian Government's National Pension Scheme.
National Pension Scheme: Overview
The National Pension Scheme is a retirement scheme that allows an individual to invest in a pension plan so as to have money once they retire. One can create an NPS account at the Canara HSBC Life Insurance as well. Under this scheme, an individual can open either a Tier I or a Tier II account.
A Tier I account does not allow the depositor to withdraw money until retirement, while the Tier II ones allow withdrawals at any time. With a stipulated base payment of Rs 500 or Rs 1000 respectively, an individual can open an account.
The benefit of opening an NPS at a young age is that it allows one to invest in a fund that can provide for them in the future. There is also a tax deduction that comes with starting this account. The amount to undergo deduction can go up to Rs 1.5 lakhs.
In addition to this, there is an additional tax deduction of around Rs 50,000 for investing in this account. However, these were the features of the National Pension Scheme in the 2020-2021 financial year.
Also Read - NPS Returns
NPS Tiers I and II: Features and benefits
Now, according to the NPS rules, Tier I accounts will receive tax deductions. These tax deductions come under section 80C. Therefore, one can reduce their payable tax after creating this kind of account. Tier II does not possess any such tax incentives. However, one will have to make a Tier I account first and can then convert it into a tier II.
In order to avail of tax benefits from this account, one will have to wait through a lock-in period of three years. This is applicable only to central government staff. The tax benefits that an employee receives are the tax deductions under section 80C as seen in Tier I accounts. However, for private-sector employees, this is not the case. Private sector employees who open Tier-II accounts will not attain any tax deductions.
Tax deductions from Tier I accounts
If an employer invests in an employees' NPS account, then they can attain a tax deduction of 10% of the salary. This is under the regulation of Section 80CCD(2) of the Income Tax law. This is the same with an employee that invests in their own NPS account as well.
Changes taking place with the new budget
The new union budget 2021 comes with a few changes regarding the tax filing system. Before the most recent Union Budget, an individual would have to personally approach a point of presence or POP in order to avail of any tax benefits. Therefore, it would have been hard for more senior individuals to do this. However, the new budget took this into consideration and came up with an easier solution.
Individuals who are above the age of 75 years will receive an exemption from filing returns on their income tax. The exemption is applicable only to the individuals receiving a pension under the National Pension scheme. The bank will automatically deduct the necessary tax on their income. Therefore, the process of payment of taxes for senior citizens becomes much easier.
With these changes due to the union budget, investments with NPS have become streamlined, especially for senior citizens. This scheme can help you create financial security for retirement days while also helping you save on tax.