Summary of NPS Deduction under Old Tax regime and New Tax regime under INCOME TAX ACT 2025

Summary of NPS Deduction under Old Tax regime and New Tax regime under INCOME TAX ACT 2025

1. Employer’s Contribution to NPS (Section 124(1) & 124(2))

• Old Tax Regime: The employer’s contribution to an employee’s notified pension scheme account is tax-deductible up to 14% of the salary for Central or State Government employees, and up to 10% of the salary for employees in other sectors.
• New Tax Regime: The deduction limit is enhanced for non-government employees. If the taxpayer opts for the new tax regime (under Section 202(1)), the deductible limit for the employer’s contribution is increased to 14% of the salary for all employees, equating private sector employees with government employees.

2. Employee’s Own Contribution (Standard Limit)

• Old Tax Regime: An individual can claim a deduction for their own contributions to the pension scheme up to 10% of their salary (for employees) or 20% of their gross total income (for non-salaried individuals). This deduction falls under Schedule XV and is subject to the overall maximum deduction limit of ₹1,50,000 under Section 123.
• New Tax Regime: This standard deduction for personal contributions is not allowed, as the new tax regime requires computing total income without most Chapter VIII deductions and standard exemptions.

3. Additional Employee Contribution of ₹50,000 (Section 124(3))

• Old Tax Regime: Taxpayers are allowed an additional, exclusive deduction of up to ₹50,000 for amounts they personally pay or deposit into a Central Government-notified pension scheme. This is over and above the ₹1,50,000 limit set by Section 123.
• New Tax Regime: Taxpayers cannot claim this additional ₹50,000 deduction. The new tax regime only permits the deduction for the employer’s contribution.

Summary Takeaway: Under the Old Regime, you get multiple avenues to claim your NPS investments (up to 10% of salary within the ₹1.5L limit, an extra ₹50,000, plus the employer’s 10%/14% contribution). Under the New Regime, your personal contributions yield no tax deductions, but the tax benefit on your employer’s contribution becomes more generous (up to 14% of salary for everyone).