Union Budget 2022 – Key Takeaways and Impact on NPS
On 1st February 2022, the honourable Finance Minister, Nirmala Sitharaman, presented the Union Budget 2022. The finance minister predicted India’s economic growth to be around 9.2% for 2022-23, the highest among all leading countries.
This year’s budget focused on four pillars – productivity enhancement and investment, sunrise opportunities, energy transition and climate action, PM Gati Shakti, financing of investments and inclusive development. Here are some of the key changes announced by the finance minister during the Union Budget 2022 speech.
- For the year 2021-22, the fiscal deficit is revised, and it is pegged at 6.9% of the GDP
- For the year 2022-23, the fiscal deficit is projected at 6.4% of GDP
- By the year 2025-26, the finance minister proposes a fiscal deficit of 4.5% of GDP
- Rs 1 lakh crore financial assistance to states to be provided in 2022-23 to catalyse investments
- RBI-regulated digital Rupee to be rolled by 2023 using blockchain technology
- 100% of 1.5 lakh post offices will become part of the core banking system to boost financial inclusion and interoperability. This will enable access to accounts like mobile banking, net banking, ATMs, and the online transfer of funds between a post office account to a bank account. This will be largely beneficial for senior citizens and farmers in remote areas.
- To encourage digital payments, 75 digital banks will be launched by SCBs in 75 districts.
- The government announced payment of annuity and lumpsum to differently abled dependent on parents/ guardians attaining the age of 60 years.
- A National Tele Mental Health Program will be launched for mental health counselling.
- The government will roll out an open platform for the national digital health ecosystem. This will include the digital registries of health providers, universal access to health services and unique health identity.
- Production Linked Incentive (PLI) schemes in 14 sectors are expected to create 60 lakh new jobs.
- Capital expenditure to be increased by 35.4% to Rs 7.50 lakh crore from Rs 5.54 lakh crore. For FY23, CAPEX is expected to be at Rs 10.7 lakh crore.
- Providing financial support to infrastructure, the MSME sector, energy transition strategies, public capital expenditure, and sunrise opportunities will create job opportunities.
- Emergency Credit Line Guarantee Scheme (ECGLS) was announced for the MSMEs to cope with the losses caused due to the pandemic. The scheme has been extended up to March 2023, and the cover is expanded by Rs.50,000 to Rs. 5 lakh crores.
- Use of Kisan Drones for crop assessment, spraying of insecticides, and digitisation of land records
- Government to make Rs 2.37 lakh crore direct payment towards procurement of wheat and paddy
- Government to allocate Rs 48,000 crores for completion of construction of 80 lakh houses under Pradhan Mantri Awas Yojana (PMAY) in rural and urban areas for the year 2022-23
- Plan to allocate Rs.60,000 crore for providing access to tap water to 3.8 crore households
- 1% TDS on transfer of virtual assets above a threshold, gifts to be taxed
- Surcharge on long-term capital gains capped at 15%
- The government will tax income from digital asset transfers at 30%
Effect of Budget on National Pension Scheme (NPS)
While presenting the Union Budget 2022-23, the FM also suggested increasing the tax deduction limit from 10% to 14% for the state government employees holding NPS accounts.
Present status of tax deduction of Central & State Government employees:
The central government contributes 14% of the salary to the NPS, which is allowed as a tax deduction in an employee’s income. For the State Government, the tax-free contribution by the employer is 10%.
Suppose your employer is contributing towards your NPS account. In that case, a deduction of up to 14% of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD (2) for central government employees.
What does the increase in tax deduction mean as announced in the Union Budget 2022-23?
According to the finance minister, the move will provide equal treatment to state and central government employees. In addition, it will also help to enhance the social security benefit of the State Government employees, bringing them at par with Central Government employees.