New Tax Regime: Significant changes in tax rules have been observed since the Central Government replaced the 64-year-old regulations with a new tax law. There has been a steady rise in the number of people opting for the New Tax Regime, primarily because it is much simpler.
Although this regime does not offer the same range of exemptions and deductions found in the old tax system, the National Pension System (NPS) remains a viable option for salaried individuals to save on taxes. Additionally, it helps build a substantial retirement corpus.
How to avail tax benefits
Under the New Tax Regime, the benefit available under Section 80CCD(2) continues to apply. This rule allows a company to contribute up to 14% of an employee’s basic salary and Dearness Allowance (DA) into their NPS account. This contribution amount is deducted from the employee’s taxable income.
For instance, if an employee’s combined annual basic salary and DA is ₹10 lakh, the company can deposit up to ₹1.4 lakh into their NPS account. This amount qualifies for a tax deduction. Consequently, the effective limit for tax-free income can rise from ₹12 lakh to approximately ₹13.5 lakh.
It is worth noting that there is no specific upper limit set for the deduction available under Section 80CCD(2). However, it is always advisable to consult a tax advisor before claiming any tax benefits.
Higher salary, greater benefits
The benefit of this scheme depends on your basic salary and DA. The higher the basic salary, the larger the company’s potential contribution to the NPS.
In other words, employees with higher salaries have the opportunity to save on taxes while simultaneously building a substantial retirement fund.
Low adoption of Corporate NPS
Despite these advantages, many companies have not yet fully adopted the Corporate NPS. A lack of awareness is considered a major reason for this. Many companies and employees are still not fully aware of their tax benefits.
Companies can easily join this system through Points of Presence (POPs) and the Central Recordkeeping Agency (CRA). These entities guide throughout the entire process.
Simple registration process
NPS registration has now become completely digital. Employees can complete their registration in just a few minutes. Several platforms have also developed HRMS-integrated systems that enable employee onboarding in seconds.