If you are a salaried employee earning Rs 20 lakh, Rs 35 lakh, or even Rs 60 lakh a year, tax planning under the new regime can feel limiting, with fewer deduction options on the table. While many employees stop at the standard deduction or traditional Section 80C investments, one tax-saving avenue that often goes unnoticed is Corporate NPS through your employer.
What makes it worth a closer look is that the tax benefit can be significantly higher than regular deduction limits, especially if your salary package allows for a larger employer contribution. Simply put, the more your eligible salary components, the bigger the potential tax break.
Here’s a comparison of how much tax you could save through Corporate NPS at different salary levels.
Calculation Check
Assumptions used for the illustration below:
- Tax regime considered:
Calculations are based on the new tax regime for FY 2025-26. - Salary structure assumption:
- Basic salary is assumed at 37.5% of the total CTC/salary
- Dearness Allowance (DA) is assumed at 12.5% of the total salary
- Therefore, Basic + DA = 50% of gross salary
- Employer’s NPS contribution:
- Employers contribute 14% of Basic + DA to the employee’s NPS account.
- Deduction claimed under Section 80CCD(2).
- Standard deduction:
A standard deduction of Rs 75,000 has been considered under the new tax regime. - Meal/food coupon benefit:
Tax-exempt meal coupons worth Rs 1,05,600 annually have been assumed, subject to employer policy and prescribed tax rules. - Tax computation:
- Tax liability is calculated using applicable new regime slab rates.
- 4% health and education cess has been included.
- No other deductions/exemptions considered:
The illustration does not include:- Section 80C investments
- HRA exemption
- Home loan benefits
- LTA
- Other allowances or deductions
- Illustrative purpose only:
Actual tax liability may vary depending on salary structure, employer policies, deductions, exemptions, and individual tax situations.
| Particulars | Rs 20 Lakhs | Rs 35 Lakhs | Rs 60 Lakhs |
| Basic Salary | 7,50,000 | 13,12,500 | 22,50,000 |
| Dearness Allowance (DA) | 2,50,000 | 4,37,500 | 7,50,000 |
| Other Salary Components | 10,00,000 | 17,50,000 | 30,00,000 |
| Gross Salary | 20,00,000 | 35,00,000 | 60,00,000 |
| Less: Standard deduction | 75,000 | 75,000 | 75,000 |
| Less: Tax-exempt meal/food coupons* | 1,05,600 | 1,05,600 | 1,05,600 |
| Net Salary Income | 18,19,400 | 33,19,400 | 58,19,400 |
| Less: Deduction under Section 80CCD(2) – Employer’s NPS contribution | 1,40,000 | 2,45,000 | 4,20,000 |
| Net Taxable Income | 16,79,400 | 30,74,400 | 53,99,400 |
| Estimated Tax Liability (including cess) | 1,41,320 | 5,22,410 | 13,72,590 |
| Meal/food coupon exemption is subject to prescribed limits and employer policy. | |||
How is corporate NPS different from an individual NPS contribution under Section 80CCD(1B)?
Corporate NPS and individual NPS contributions differ mainly in terms of who makes the contribution and the tax benefits available.
Corporate NPS contribution is made by the employer to an employee’s National Pension System (NPS) account. It qualifies for a tax deduction under Section 124(1) of the ITA 2025 [corresponding to Section 80CCD(2) of the ITA 1961].
CA (Dr.) Suresh Surana says, importantly, this deduction is available over and above the Rs. 1.5 lakh deduction limit prescribed under Section 123 read with Schedule XV of the ITA 2025 [corresponding to Section 80C of the ITA 1961]. This is not eligible for deduction u/s 80CCD(1B) of the ITA 1961.
Individual NPS contribution refers to contributions made by an individual (including voluntary contributions made by self-employed individuals) to their own NPS account under Section 124(3) of the ITA 2025 [corresponding to Section 80CCD(1B) of the ITA 1961]. Taxpayers can claim an additional deduction of up to Rs. 50,000 (only under the old tax regime), over and above the Rs. 1.5 lakh limit under Section 123 read with Schedule XV of the ITA 2025 [corresponding to Section 80C of the ITA 1961].
Why is Corporate NPS emerging as the preferred tax-saving option under the new tax regime?
As per Section 124 read with Schedule XV of the Income-tax Act, 2025 (ITA 2025) [corresponding to Section 80CCD of the Income-tax Act, 1961 (ITA 1961)] Corporate NPS is considered attractive under the new tax regime because the employer’s contribution to the National Pension System (NPS) continues to provide a tax deduction benefit, even when most exemptions and deductions are not available.
As per CA (Dr.) Suresh Surana, key reasons include:
Additional Tax Benefit Available Under New Regime – Under Section 124, read with Schedule XV of the ITA 2025, provides that the employer’s contribution to NPS is deductible from the employee’s taxable income even under the new tax regime.
Higher Deduction Limit – The deduction is allowed up to 14% of salary (Basic + Dearness Allowance) for all employees [irrespective of Central/State Government and other employees] opting for the new tax regime (subject to prescribed conditions).
No Overall Deduction Cap of Rs. 1.5 Lakh – Unlike deductions under Section 123 read with Schedule XV of the ITA 2025 [corresponding to Section 80C of the ITA 1961], the employer’s NPS contribution under Section 124(1) read with Schedule XV of the ITA 2025 is over and above the Rs. 1.5 lakh ceiling and is separate from other deduction limits.
Tax-Efficient Retirement Savings – Since the contribution is made by the employer and qualifies for a deduction, it helps employees build a retirement corpus while simultaneously reducing taxable income.
Suitable for Salaried Employees Under New Regime – As the new tax regime restricts most deductions and exemptions, corporate NPS becomes one of the few effective tax planning tools still available for salaried individuals.
Disclaimer:
This calculation is for illustrative purposes only and is based on assumed salary structures, employer contribution patterns, and applicable tax rules under the new tax regime for FY 2025-26. Actual tax savings may vary depending on your salary breakup, employer policies, exemptions, deductions, and individual financial situation. Please consult a tax expert before making investment or tax-planning decisions.