The Union Budget for 2024-25 is expected to introduce measures aimed at supporting the middle class and low-income populations affected by persistent food inflation and stagnant incomes. Policymakers are reportedly considering various incentives, including personal income tax reliefs, higher retention levels of Agniveers in the regular defense services, and increased government support for urban housing to stimulate the labor-intensive construction sector.

Additionally, the government is likely to announce an assured pension option under the National Pension System (NPS) as part of efforts to enhance pensionary benefits for government employees.

“Besides the poor, the budget will likely announce measures to soothe the middle class who are probably miffed,” an official stated, requesting anonymity.

The recent general elections placed the Narendra Modi government in a challenging position, as the Bharatiya Janata Party (BJP) fell short of an outright majority and now relies on coalition partners. With crucial state elections in Maharashtra and Haryana approaching in October, the budget is seen as a strategic tool to garner voter support.

“Discussions are ongoing to make the new personal income tax regime more attractive, leaving more money in the hands of people,” another official noted. One proposal includes raising the standard deduction by ₹25,000-₹50,000 under the new tax regime.

Under the current new income tax regime, a rebate is available for income up to ₹7 lakh, with a standard deduction of ₹50,000. Raising the standard deduction by ₹25,000-₹50,000 could exempt income up to ₹8 lakh from income tax. The new regime, introduced in 2019-20, has seen around 60% adoption but still has room for growth.

The government is considering expanding the number of “metropolitan cities” for higher House Rent Allowance (HRA) claims, potentially including Bangalore and Hyderabad.

HRA is a salary component paid by employers towards rent payment by employees. The least of the following is exempted from salary under Section 10(13A) of the Income Tax Act:

• Actual HRA received from the employer
• 50% of salary if the rented property is in metro cities (Mumbai, New Delhi, Kolkata, Chennai)
• 40% of salary for non-metro cities
• Actual rent paid minus 10% of salary

For Centre’s staff under NPS, the government may offer a guaranteed pension option, potentially providing 40% or more of the last basic pay as pension. This move follows a panel recommendation to enhance pension benefits without reverting to the non-contributory old pension system (OPS).

To address dissatisfaction among youth aspiring for armed forces careers, the government may adjust the Agnipath scheme. Plans include more than doubling the absorption of Agniveers into regular services with full pay and pension after the four-year contractual period.

The Agnipath Scheme, launched on June 15, 2022, recruits servicemen on a four-year contractual basis to manage salary and pension costs. The defense budget for FY25 is set at ₹1.41 trillion, a 22% increase from ₹1.16 trillion in FY22. Increased retentions may focus on technical and specialist forces, aligning with future defense readiness needs.

The Union Budget 2024-25 aims to address economic challenges, support middle and low-income populations, and bolster defense and pension systems, reflecting the government’s broader socio-economic goals.

When it comes to the National Pension System (NPS), understanding withdrawal options is crucial for managing your retirement savings effectively. Here’s a breakdown of how you can access your funds, whether you need liquidity along the way or upon retirement:

Partial withdrawal after five years:

After completing five years in the NPS, you can make partial withdrawals from your Tier-I retirement account. This allows you to access up to 25% of your own contributions for specific reasons such as illness treatment, education funding, or property purchases. Keep in mind that withdrawals are limited to three times during the entire investment period.

Complete, premature withdrawal:

While premature withdrawal is possible before turning 60, it comes with certain conditions. You must have invested in NPS for a minimum of five years before withdrawing. Upon premature exit, you can withdraw up to 20% of the corpus as a lump sum, with the remaining 80% used to purchase an annuity plan.

Final exit at maturity:

Upon reaching 60 years of age, you can make your final withdrawal from the NPS. This allows you to withdraw up to 60% of the corpus as a tax-free lump sum. The remaining 40% must be converted into annuities, providing a steady income stream for retirement.

Staggered withdrawal till 75 years of age:

Introduced in 2023, the staggered withdrawal option offers flexibility in accessing your lump-sum component. Instead of withdrawing the entire amount at once, you can opt for systematic withdrawal in monthly, quarterly, half-yearly, or annual modes until you reach 75. However, 40% of the corpus still needs to be annuitized as per regulations.

Navigating NPS withdrawal:

Whether you need partial liquidity or are planning your retirement exit strategy, understanding NPS withdrawal options is essential. By leveraging these options effectively, you can manage your retirement funds according to your financial goals and lifestyle needs.