To make the New Pension Scheme (NPS) more attractive under the new tax regime, Finance Minister Nirmala Sitharaman has proposed increasing tax deductions for employers’ contributions from 10% to 14% of an employee’s salary.
NPS Employer Contribution Tax Benefit
In her 2024-25 Budget speech, Sitharaman announced that to improve social security benefits, the deduction for employers’ contributions to NPS will be increased from 10% to 14%. This change applies to employees in the private sector, public sector banks, and undertakings who opt for the new tax regime.
Preeti Sharma, a partner at BDO India, explained that this additional deduction means employees with a basic salary plus dearness allowance of Rs 1,00,000 per month can now claim an additional Rs 4,000 per month or Rs 48,000 per annum for employer contributions to NPS, potentially saving Rs 14,976 in annual taxes.
Sonu Iyer, EY India’s Tax Partner and National Leader (People Advisory Services), stated that the increased tax deduction will make NPS more popular. Prashant Shah, Co-Founder of TeamNest.com, emphasized that this change allows employees to accumulate a larger retirement corpus, ensuring greater financial stability post-retirement. The enhanced employer contribution of 14% increases retirement savings without additional personal cost and comes with substantial tax benefits, reducing taxable income and overall tax liability. This initiative strengthens the social security net and makes NPS more attractive for employees in various sectors.
New NPS Scheme: NPS-Vatsalya
Additionally, the finance minister proposed a new plan called ‘NPS-Vatsalya’, allowing parents and guardians to contribute to NPS accounts for minors.
