New Tax Regime: Chartered accountants say that companies are now showing interest in restructuring employee salary packages by including Corporate NPS (National Pension System).
Employees are also showing interest, especially those who don’t claim HRA (House Rent Allowance) and have shifted to the new tax regime.
The main reasons for this shift are the new tax system and employees becoming more aware of tax-saving options.
Bhavesh Shah, senior partner at Mumbai-based Hasmukh Shah & Co LLP, said, “This April, we’ve received several inquiries from companies wanting to include Corporate NPS in their employees’ salary structure.
They are planning to add NPS under the flexi benefit part of the CTC (cost to company).”
Saving opportunity in the new tax regime
Although most tax exemptions have been removed under the new system, companies can still claim up to 14% deduction on NPS contributions under Section 80CCD(2).
This is why many salaried employees are choosing Corporate NPS to lower their tax burden.
Mayank Mohanka, Founder and Director of TaxAaram.com, said, “Special allowances are fully taxable.
So companies are now turning these into Corporate NPS contributions to help reduce employees’ taxable income.”
Naveen Wadhwa, Vice President at Taxmann, explained, “The 14% NPS exemption in the new tax regime is higher than the 10% allowed under the old system.
That’s why employees are now favoring the new regime.” He added that employees earning between ₹12.75 lakh to ₹14 lakh annually can reduce their taxable income by choosing NPS.
Only HRA claimants prefer the old regime
Mayank Mohanka added, “Only those employees who pay monthly rent of ₹85,000 or more and claim HRA are still getting more benefit from the old tax regime.
Most other salaried individuals have already shifted to the new system.”
According to Wadhwa, the old tax regime only benefits employees earning over ₹24 lakh annually and claiming more than ₹8 lakh in exemptions.
HRA is the only major exemption in this case, and it doesn’t have a fixed upper limit.
Caution when paying rent to parents
Many employees claim HRA by paying rent to their parents under the old system.
However, experts warn that a sudden increase in rent might invite scrutiny from the Income Tax Department.
Mumbai-based CA Chirag Chauhan said, “This is legal, but if someone shows an unusually high rent, they may face an inquiry under Section 143(3).”
He advises that anyone paying rent to their parents should have a proper rent agreement and keep rent receipts.
