If you’re someone who has invested in the National Pension System (NPS) and are using the New Tax Regime, there’s great news for you. Many people think that tax-saving options are only available under the Old Tax Regime. But actually, there’s a special trick that can help NPS Account Holders save big on taxes in the New Regime—without any extra documents or investments. This article will explain how you can do that in the simplest way possible.
What Is NPS and the New Tax Regime?
The National Pension System (NPS) is a government-backed pension scheme that helps you save money for your retirement.
The New Tax Regime, introduced by the Indian government, has lower tax rates but fewer options for deductions. Many people think they can’t save tax under this system, but that’s not completely true—especially if you have an NPS account.
The Simple Trick to Get Tax Exemption in New Regime
Here’s the trick: Activate your Employer’s NPS Contribution.
If you change your NPS account to the Corporate or Employer model, then your employer’s contribution to your NPS will be tax-free. This benefit is available under Section 80CCD(2) of the Income Tax Act.
You don’t need to make any extra investment. Your company adds money to your NPS Account Holders, and you get a tax deduction automatically.
How Much Tax Can You Save?
- If you are a government employee, your employer can contribute up to 14% of your basic salary to your NPS.
- If you are a private employee, the limit is 10%.
This amount is completely tax-free in the New Tax Regime.
Let’s Understand With an Easy Example
Suppose your yearly basic salary is ₹9.6 lakh, and your employer contributes 14% to your NPS:
₹9,60,000 × 14% = ₹1,34,400
This means ₹1.34 lakh will not be counted as taxable income. If your total salary is ₹12 lakh, your taxable income becomes:
₹12,00,000 – ₹1,34,400 = ₹10,65,600
So, you save tax on ₹1.34 lakh without doing anything extra!
Why This Is the Best Tax-Saving Option in New Regime
In the Old Tax Regime, you could save tax by investing up to ₹50,000 in NPS under Section 80CCD(1B).
But in the New Regime, you can’t claim these deductions—except the employer contribution under Section 80CCD(2). So, this becomes one of the only tax-saving tools available in the New Regime.
Steps to Activate Employer NPS Contribution
You can easily change your NPS Account Holders to the Corporate Sector using these steps:
- Log in to your NPS account on the CRA portal (NSDL or KFintech).
- Select the “Sector Change” option.
- Choose “Corporate Sector”.
- Ask your HR department for the EPS Code.
- Complete the registration process.
Your NPS Account Holders will be updated in 7 to 10 working days.
Can I Still Get This Benefit in Old Regime?
Yes, this exemption is also available in the Old Tax Regime. But the difference is, in the Old Regime, you have many other deductions like:
- Section 80C
- Section 80D
- Home loan interest
So, this NPS benefit is one of many tax-saving tools in the Old Regime.
In the New Regime, this NPS employer contribution is one of the only tax benefits. That’s why it becomes very important if you want to reduce your taxes.
How Much Can You Actually Save?
If your employer contributes up to ₹1.34 lakh to your NPS, you can save a good amount of tax based on your income slab. This could mean:
- ₹20,000 to ₹40,000 or more in actual tax saved every year!
- You don’t need to submit proof or make extra payments.
- It’s simple, safe, and effective.
Final Words
If you are using the New Tax Regime and have an NPS Account Holders, this trick can help you save a lot of money on tax. You just need to switch to the Corporate NPS model and let your employer contribute. It doesn’t cost you anything, requires no paperwork, and gives you a direct tax exemption. Many people miss this opportunity simply because they don’t know about it. So, act now and start saving smarter!
FAQ’S
1. Can I save tax with NPS in the New Tax Regime?
Yes, if your employer contributes to your NPS, you get a tax exemption under Section 80CCD(2).
2. How much tax can I save?
You can save tax on up to 14% (govt job) or 10% (private job) of your basic salary.
3. Do I need to invest my own money for this benefit?
No, this benefit is only on the amount your employer adds to your NPS.
4. How do I activate the employer NPS benefit?
Log in to your NPS account, choose “Corporate Sector,” and register with your employer’s EPS code.
5. Is this benefit available in the Old Tax Regime?
Yes, but it’s more useful in the New Regime where other deductions are not allowed.