Salaried Employees Save up to Rs 87,000 in Taxes through Corporate NPS Plans

Tax-Saving Avenues Expand: Corporate National Pension System (NPS) Emerges as Preferred Choice

The National Pension System (NPS) has become one of the most effective tax-saving avenues available to salaried individuals under the new tax regime. As the new regime offers limited exemptions and deductions compared to the old tax regime, many taxpayers are looking for legitimate ways to lower their tax burden without making complicated investments. Corporate NPS, offered through employers, is increasingly emerging as a practical solution.

Under Section 80CCD(2) of the Income-tax Act, an employer's contribution to an employee's NPS account qualifies for tax deduction. This deduction is available over and above other tax benefits and can be claimed even under the new tax regime.

Tax Calculation for Salaried Employee with Rs 40 Lakh Salary

Read also: Correcting Credit Score Errors: A Guide to Ensuring Accurate CIBIL Reports and Optimal Loan Eligibility

Consider a salaried employee with an annual cost-to-company (CTC) of Rs 40 lakh. From the total CTC, the employer's contribution towards provident fund amounts to Rs 2.4 lakh, while gratuity contribution stands at Rs 96,154. After deducting these components, the gross salary considered for taxation comes to around Rs 36.63 lakh.

After claiming the standard deduction of Rs 75,000 available under the new tax regime, the taxable salary works out to approximately Rs 35.88 lakh.

If the employee does not opt for corporate NPS, the total taxable income remains Rs 35.88 lakh and the overall tax liability, including health and education cess, comes to nearly Rs 6.82 lakh.

However, if the employer contributes Rs 2.8 lakh to the employee's NPS account under the corporate NPS structure, the taxable income reduces to nearly Rs 33.08 lakh. Consequently, the total tax payable falls to around Rs 5.95 lakh.

Read also: Missing a Single EMI Payment Can Adversely Impact Credit Profile

This leads to an overall tax saving of nearly Rs 87,000.

Why Corporate NPS is Attractive Under the New Tax Regime

The new tax regime has simplified tax slabs but removed several deductions that taxpayers traditionally used to lower taxable income. In such a scenario, corporate NPS remains one of the few meaningful tax benefits still available to salaried individuals.

Another major advantage is that the contribution is made directly by the employer. This means employees can restructure their salary package to include NPS contributions without significantly affecting monthly cash flow.

For private sector employees, the maximum deduction allowed under Section 80CCD(2) is up to 10 percent of salary contributed by the employer. For central government employees, the limit is 14 percent.

Retirement Planning Benefit

Apart from tax savings, corporate NPS also helps employees create a disciplined retirement corpus over the long term. Since the investment remains market-linked and professionally managed, it can help generate wealth for post-retirement financial security.

With rising interest among high-income salaried professionals, many companies are increasingly incorporating corporate NPS into compensation structures to help employees optimise taxes while planning for retirement simultaneously.

Comparison of Tax Liability with and without Corporate NPS