The National Pension System (NPS) remains a tax-efficient retirement planning option, even under the New Tax Regime. While the old regime offered multiple deductions, the new regime simplifies taxation by lowering tax rates and limiting exemptions.
What does this mean for NPS contributors?
How much tax can you save in the new regime?
This guide will break down the NPS tax benefits in new tax regime for:
- Employees contributing to NPS
- Employer’s NPS contribution
- Self-employed NPS investors
- NPS withdrawals & annuity purchases
Maximise your NPS benefits today! Open an NPS account with HDFC Pension.
Tax Benefits for Employees on Self-Contribution
Under the Old Tax Regime, employees can claim:
- ₹1.5 lakh deduction under Section 80CCD(1) (part of 80C limit)
- ₹50,000 additional deduction under Section 80CCD(1B)
- Total deduction of upto 10% of their Basic Salary + Dearness allowance(DA) under Section 80CCD(2)
Please note that under section 80CCD(2), deduction on maximum amount of ₹7.5 lakh can be claimed
What About the New Tax Regime?
No deduction is available for self-contribution under Section 80CCD(1) and Section 80CCD(1B) in the new tax regime. Under the old tax regime, Section 80CCD(1) deduction is available within the overall ₹1.5 lakh limit under Sections 80C, 80CCC and 80CCD(1), subject to 10% of salary for employees and 20% of gross total income for self-employed individuals. An additional deduction of up to ₹50,000 under Section 80CCD(1B) is also available only in the old regime.
However, the employer’s contribution to NPS under Section 80CCD(2) remains available in the new tax regime. The deduction is allowed up to 14% of salary where the employee opts for the new tax regime under Section 115BAC; in other cases, it is generally allowed up to 10% of salary, while Central/State Government employees can claim up to 14% of salary.
If you are opting for the new tax regime, the main NPS tax benefit available is Section 80CCD(2) for employer contribution.
Who should choose NPS under the New Regime?
- Those whose employers contribute to NPS
- High-income individuals benefit from lower tax rates
Need help deciding? Calculate your NPS tax savings with HDFC Pension.
Tax Benefits for Employees on Employer’s Contribution
Employer’s contribution to NPS is still tax-free under the New Tax Regime!
Employer’s contribution to NPS continues to remain eligible for deduction under the new tax regime. For taxpayers opting for the new regime, a deduction is allowed up to 14% of salary. Under the old regime, the limit is generally 10% of salary for other employers and 14% for Central/State Government employers. However, the overall annual ₹7.5 lakh cap on aggregate employer contributions to NPS, recognised provident fund, and approved superannuation fund should be kept in mind, as any excess may become taxable.
Example:
- Annual salary: ₹10,00,000
- Employer’s NPS contribution (10%): ₹1,00,000
- Taxable income reduces to ₹9,00,000!
- This remains one of the key NPS tax benefits for salaried employees new regime offers.
Want tax-free employer NPS benefits? Join HDFC Pension today.
Tax Benefits for Self-Employed Individuals
New Tax Regime: No deductions under 80CCD(1) or 80CCD(1B).
But NPS is still beneficial because of its high returns & disciplined retirement savings! When reviewing NPS tax benefits for self-employed new regime, it is important to note that self-contribution deductions are not available.
Self-employed? Secure your future with NPS through HDFC Pension.
Tax Benefits on Partial Withdrawal from NPS Account
New Tax Regime: No deductions under 80CCD(1) or 80CCD(1B).
But NPS is still beneficial because of its high returns & disciplined retirement savings! When reviewing NPS tax benefits for self-employed new regime, it is important to note that self-contribution deductions are not available.
Self-employed? Secure your future with NPS through HDFC Pension.
Tax Benefit on Purchase of Annuity from NPS Corpus
- 60% of the NPS corpus can be withdrawn at retirement (tax-free in the old regime).
- 40% must be used to buy an annuity, which is taxable as per the income slab.
New Tax Regime:
- Tax-free withdrawal (60% corpus) remains unchanged!
- Annuity income is taxable as per the new tax slab.
Maximise your post-retirement income! Invest with HDFC Pension.
Tax Benefit on Lump Sum Withdrawal at Retirement
Under Section 10(12A), lump-sum withdrawal from NPS at retirement/exit can be tax-exempt up to 60% of the total amount payable, subject to the conditions specified under the Income-tax Act. While recent PFRDA rule changes have provided greater withdrawal flexibility for certain non-government subscribers, the current tax exemption under Section 10(12A) continues to be linked to the 60% limit, unless amended by law.
The amount used for the purchase of an annuity is not taxed at the time of purchase, but the annuity income (pension) received thereafter is taxable in the year of receipt as per the applicable tax slab. Future amendments may change the exempt percentage or thresholds, so the applicable position should be checked upon exit.
Plan your retirement withdrawals smartly! Get expert advice from HDFC Pension.
Tax Benefits for Corporates/Employers
Corporates get tax deductions on employer contributions to NPS under:
- Section 80CCD(2) – Up to 10% of salary is deductible
- Business expense deductions for NPS contributions
Want to offer NPS to employees? Partner with HDFC Pension for corporate NPS benefits!
Summary: Should You Invest in NPS Under the New Tax Regime?
- Employer’s NPS contribution is still tax-free.
- Partial withdrawals are tax-exempt.
- 60% corpus withdrawal at retirement remains tax-free.
- No deductions for self-contributions (unlike the old regime).
This also highlights NPS tax benefits old vs new regime for different types of investors.
Best for:
- Salaried individuals with employer NPS contributions
- Investors looking for long-term retirement security
- Corporate employers seeking tax deductions
Secure your future with NPS! Start investing with HDFC Pension today.
FAQs
1. Is NPS considered in the new tax regime?
Yes. NPS is still relevant in the new tax regime, but mainly through employer contribution under Section 80CCD(2) and the Section 10 exemptions on eligible withdrawals/exits.
2. Do I get 80CCD(1) and 80CCD(1B) deductions in the new tax regime?
No. 80CCD(1) and 80CCD(1B) are not available in the new tax regime. They are available only in the old regime, subject to the usual limits.
3. Is my employer’s NPS contribution tax-beneficial in the new regime?
Yes. Employer’s NPS contribution remains deductible under Section 80CCD(2) in the new regime, up to 14% of salary.
4. How is NPS maturity taxed in the new tax regime?
On closure or opting out, up to 60% of the total corpus is exempt under Section 10(12A). The amount used to buy an annuity is not taxed at purchase, but the annuity/pension received later is taxable as income in the year of receipt.
5. Is NPS still beneficial under the new tax regime?
Yes, especially if your employer contributes to NPS. The self-contribution deductions are gone in the new regime, but the 80CCD(2) employer-contribution benefit and the eligible Section 10 withdrawal exemptions still remain.
