New tax regime to benefit employees with National Pension System accounts

New tax regime to benefit employees with National Pension System accounts

The new tax regime released by the Central Government scrapped tax deduction for lower slab from the old tax regime. Investments under Section 80C like PPF, NPS, ELSS, NSE do not have an exemption under the new tax regime.

But the new tax regime has few exceptions in deductions of income/investment which were previously a part of the old tax regime. 

For instance, under the Income-tax act 1961, employer's contribution to the employee's EPF, NPS and any superannuation funds fell under Section 80CCD(2). 

In this section, tax is exempted for those employees whose contributions have been up to Rs. 7.5 lakh per year in the employee's superannuation funds.


The only people who cannot benefit from this section are employers who contribute to their employee's National Pension System (NOS) accounts. 

Currently, if an employer is not contributing to the NPS account, he/she can be encouraged to restructure the compensation package, this way a part of their salary will be deducted for the employees NPS account.

The new tax rules reveal, employees with a government job can receive 14% of their basic allowance by their employer through NPS account every month, meanwhile, employees from the private sector can receive 10% of the basic allowance.

Also, according to the tax regime, if your employer contributes to your NPS account every month, then the employee with a salary of 10 lakh per annum can avail 1 lakh from the NPS account.

In the new tax regime, Standard Deduction of Rs. 50,000 has been removed, however, the employees can benefit from their NPS accounts.


Additionally, Under Section 80CCD(2), only salaried individuals can benefit, non-salaried individuals cannot enable this benefit.

In the new tax structure, annual contribution to PPF accounts for deduction is discontinued, but it the interest earned from the contribution to PPF account is exempted from tax in the new regime.

Meanwhile, even the contribution towards Employees' Provident Fund (EPF) is not available, however, the interest earned is exempted from income tax. But there is a condition, in the interest earned must not cross 9.5 per cent per annum.

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