All salaried employees must know who have moved to the new tax regime, tax saving can feel limited. This has led many to question if there are still practical ways to ease their tax burden. Let’s have a look.
If you are a salaried employee in the new tax regime, you may have noticed that most of the tax planning options have shrunk. Investments under Section 80C and HRA benefits no longer work the same way. But there is still one lesser-known route that can help reduce your taxable income, i.e., employer contributions to NPS.
THE NEW REGIME LEAVES LIMITED WAY TO SAVE TAX
The new tax regime was designed to simplify taxes by lowering rates and removing many deductions. As a result, many salaried employees feel they have little room left to plan their taxes.
Investment in NPS and Tax Benefits
Under the income tax rules, an employer can contribute up to 14% of an employee’s basic salary to an NPS Tier-I account. This contribution is deductible under Section 80CCD (2) and is reduced from the employee’s taxable income.
example: “If your basic salary is Rs 50,000 a month and the employer contributes 14% to NPS, that’s Rs 7,000 monthly or Rs 84,000 a year. For someone in the 30% tax bracket, that alone can mean tax savings of around Rs 25,200 a year, while the money continues to grow for retirement.”
Apart from the immediate tax benefit, the invested amount has the potential to earn market-linked returns over the long term, helping employees build a retirement corpus.
NEW RULES MAKE NPS MORE FLEXIBLE
One reason some employees hesitated to use NPS in the past was the long lock-in period. Recent changes in rule have added more flexibility. Partial withdrawals are allowed after three years, and there are structured options for drawing money later in life. there are options for partial withdrawal and systematic access, which makes it more practical for long-term planning.
This flexibility makes NPS easier to fit into a broader financial plan rather than viewing it as money that is untouchable until retirement.
WHY EMPLOYEES SHOULD REVIEW THEIR SALARY STRUCTURE
For many salaried workers, employer NPS contributions are already part of the cost-to-company structure, but not everyone notices how it affects their taxes. Reviewing salary slips and discussing options with HR can help employees understand whether they are making full use of this benefit.
HOW EMPLOYER CONTRIBUTIONS TO NPS LOWER TAX BURDEN
In simple terms, the employer’s NPS contribution is treated as a retirement investment made on the employee’s behalf. Because it is deducted before tax is calculated, it reduces the amount of income that gets taxed.
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