You will not be eligible for some of the tax benefits on NPS contribution if you opt for the new tax rates
If you opt for the new tax rates, you can still claim income tax deduction on employer contribution towards employee’s NPS account
Due to the coronavirus pandemic, the government has extended the date till June 30 for making various investment/payment for claiming deduction for FY 2019-20. It includes National Pension Scheme (NPS) and other Section 80C investments like PPF and NSC. From April, new income tax rates came into effect. However, the old tax slabs will also remain in effect, giving a choice to the individual to opt between the two.
Under the new tax rates, there is zero tax for income up to ₹2.5 lakh; 5% for income between ₹2.5 lakh and up to ₹5 lakh; 10% for income between ₹5 lakh and up to ₹7.5 lakh; 15% for income between ₹7.5 lakh and up to ₹10 lakh; 20% for income between ₹10 lakh and up to ₹12.5 lakh; 25% for income between ₹12.5 lakh and up to ₹15 lakh; 30% for income above ₹15 lakh.
Income tax deduction on NPS: Old tax rate vs new tax rate:
1) You will not be eligible for some of the tax benefits on NPS contribution if you opt for the new tax rates.
2) If you opt for the new tax rates, you can still claim income tax deduction on employer contribution towards employee’s NPS account. If your employer is contributing towards your NPS account, a deduction of up to 10% of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD(2).
3) Central government employees enjoy a higher limit of 14% of the salary. For others, the limit is 10%.
4) This benefit is also available if you stick to the old income tax regime.
5) If you stick to the old income tax regime, you can claim exclusive deduction of ₹50,000 under Section 80CCD (1B).
6) But this cannot be claimed if you switch to the new tax regime.
7) Under the old tax regime, this extra ₹50,000 tax deduction is in addition to the ₹ 1.5 lakh allowed under Section 80CCD (1) for investment towards NPS.
8) This ₹1.5 lakh tax deduction is not available under new income tax regime.
It is to be noted that the total amount of deduction under sections 80C, 80CCC (investment in pension plan offered by an insurer) and Section 80CCD (1) (for NPS) cannot exceed Rs. 1.5 lakh in a financial year.
9) In another income tax change that came into effect from April 1, employer's contribution exceeding ₹7.5 lakh in a year towards NPS, superannuation fund and EPF will be taxable in the hands of the employee.
10) This change in income tax rule will be applicable in both the old and new tax regime.