How To Take Standard And NPS Deductions To Reduce Your Taxes

When submitting their returns, income taxpayers in India have an option between two tax systems; one, known as the new tax structure, limits these advantages while the other offers exemptions and deductions. There have been recent attempts to provide an exemption on yearly income up to Rs 7 lakh for those who join the new income tax system. If salaried employees choose this method, they are still eligible for a few deductions.

Income taxpayers may take advantage of two important deductions under the new tax system: a basic deduction and a deduction for the employer’s National Pension System (NPS) contribution. By using these deductions, people may drastically lower their tax obligations—in fact, if their yearly income exceeds Rs. 8 lakh, some may be able to completely avoid paying income tax.

Employed people may deduct up to Rs 50,000 in taxes under the standard deduction, while family pensioners can deduct up to Rs 15,000 in taxes. For instance, the tax computation would be based on Rs 7,50,000 rather than the full Rs 8 lakh if a salaried individual has an annual income of Rs 8 lakh and takes use of the full statutory deduction of Rs 50,000. Interestingly, no further paperwork is required in order to claim this deduction.

The amount deposited in the National Pension System (NPS) provides an additional deduction under the new tax structure. Under certain situations, employed persons are eligible for a standard deduction on the NPS deposit. This sum must be deposited by the employer into the worker’s Tier-1 NPS account; for workers in the private sector, the deposit cannot exceed 10% of their pay; for workers in the government, it cannot exceed 14%. The Income Tax Act’s Section 80CCD (2) applies to this deduction. It is represented in Form 16’s Part B.

A salaried worker earning Rs 8 lakh per year may be able to make their income tax free by combining these two deductions. Once the standard deduction of Rs 50,000 is deducted, the taxable income drops down to Rs 7.5 lakh. The employee’s taxable income is reduced to Rs 7 lakh under the new tax scheme if the employer contributes an additional Rs 50,000 to their Tier-1 NPS account.