People who use the new income tax regime have more benefits in NPS. If you use the new regime, then under section 80CCD (2), employer’s contribution of up to 14% of the basic salary in NPS is tax-free. Many times, due to the salary structure not being tax-friendly, the employee has to pay more tax.Â
There are many parts of the salary which are exempted from tax. If these are not included in the salary structure, the tax liability of the employee increases. Secondly, NPS is very helpful in saving tax. If you do not contribute to NPS, then you can start contributing to it. This will reduce your tax liability significantly. Also, a good fund will be created for you in the long term. You will also get pension after retirement in NPS. More benefits in the new income tax regime
People using the new income tax regime have more benefits in NPS. If you use the new regime, then under section 80CCD (2), employer’s contribution of up to 14% of the basic salary in NPS is tax-free. If you use the old income tax scheme, then employer’s contribution of up to 10% of the basic salary in NPS will be tax-free. This means that even if you are using the old income tax regime, you can save an additional tax of Rs 50,000 annually by contributing to NPS.
Tax-savings can be done in two ways with the help of NPS
For this, you have to use section 80CCD(2) as well as section 80CCD(1B). Under this section, the employee himself has to contribute Rs 50,000 to NPS. Suppose your basic salary is Rs 1.10 lakh. If your employer contributes Rs 10,988 every month to your NPS account, then you can save tax of about Rs 39,558 annually. Apart from this, you can contribute Rs 50,000 to NPS yourself under section 80CCD(1B). With this, you can save tax of Rs 15,600 annually. In this way, with the help of NPS, you can save tax of Rs 55,158.
The new regime is beneficial for those who do not claim deductions
If you use the new income tax regime, then you will be able to save more tax by contributing to NPS. But, in the new regime, you will not get the benefit of all other deductions including section 80C. People who do not take advantage of deductions can take full advantage of NPS in the new regime. This will reduce their tax liability significantly. Experts also advise people who do not take advantage of section 80C to use the new income tax regime.
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Your employer will have to make monthly contribution
In the new regime, tax benefit is available on contribution to NPS up to 14 percent of the employer’s basic salary. This means that the employer can contribute Rs 15,400 every month to your NPS account. On this, you can save more than Rs 55400 tax annually. If you also contribute Rs 50,000 yourself, then you can save an additional Rs 15,600. In this way, your total annual tax savings will be around Rs 71,000. Keep in mind that you will have to request your employer for contribution to the NPS account.
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