Kolkata: For a vast section of the Indian population, one of the big bang announcements in Budget 2025 has been the relaxation on Income Tax. Ostensibly done for providing more disposable income in the hands of the salaried individual in the hope that the extra cash will trigger more consumption, which, in turn, will help raise GDP growth, and generate more employment opportunities, it allows an individual to enjoy income tax free salary up to Rs 12 lakh a year — a quantum leap over the Rs 7 lakh cap in this year’s (FY25) budget. The ceiling actually will go up by Rs 75,000 since the standard deduction will be added to the newly announced ceiling. However, analysts have suggested that there exists an even bigger bonanza for taxpayers, if they invest in an NPS (National Pension System) account.
Before proceeding to the calculations, let’s have a small recap. Section 80CCD(2) of the Income Tax Act states that an individual will get an income tax benefit if his/her employer contributed to his/her NPS account. However, it has also been pointed out that though individuals can get this additional benefit, it can be availed only if the employer includes NPS as an item in the “cost to company” package and an individual cannot directly claim it.
Income tax free till Rs 13.7 lakh a year: Check the calculation
Let’s assume that an individual has a basic income of Rs 6.85 lakh, which is half his/her total salary. Now, 14% of Rs 6.85 lakh comes to Rs 95,900, which we can round off to Rs 96,000. An employer can contribute 14% of the salary of an employee in NPS. Now add a standard deduction of Rs 75,000 to this amount, which makes it Rs 1.71 lakh. Add to this the Rs 12 lakh income a year, and it becomes clear why a person who has NPS built into his/her compensation structure will effectively pay no tax till the income level of Rs 13.7 lakh a year from FY26.
We all know that in FY26 the salaried class need not pay any income tax till the income of Rs 12 lakh, according to the announcement by finance minister Nirmala Sitharaman in Budget 2025. But a scrutiny of the announcement is indicating that one can effectively escape payment of any income tax till the income level of Rs 13.70 lakh a year, if investments are done in NPS (National Pension System). To know the calculation, please read on. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
