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Can I Save Tax via NPS in the New Tax Regime? A Private Sector Employee's Dilemma

Tax Expert - Answered on Sep 09, 2024

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more

Asked by Anonymous - Aug 23, 2024Hindi

1. In the New Tax Regime, I can save Tax via NPS or Not. I am in a Private Job. 2. Long Term Capital Gain and Short Term Capital Gain both combine 1.25 Lakhs or separations we have to consider . With respect to the Share Market and Mutual Fund .

Ans: Under new tax regime, person can claim deduction of NPS for contribution by employer.

Further, exemption limit of 1.25 lacs is applicable to long term capital gain covered u/s 112A which covers equity shares on which STT is paid at the time of acquisition as well as transfer (subject to specified condition) and equity based mutual fund scheme

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Question by Niranjan - Aug 25, 2021Hindi

I had purchased some stocks in 2015. I have sold them in 2021. I would like to know the tax implications as there was no long-term gain on equity before 2018. In your previous column, you answered the query regarding grandfathering clause and purchase price calculation. I would like to know that, if the total gains in my stocks plus MF do not exceed the Rs 1 lakh threshold, do I need to report the gain in my IT returns? I am in the 30 per cent tax bracket. I have two more questions: 1. Is it beneficial for me to invest in NPS for the Rs 50,000 tax savings, since this will be locked in until I turn 60 years -- ie approximately 15 years from now. As I am utilising Rs 1,50,000 in my PPF savings, an additional Rs Rs 50,000 saving will be useful. 2. Are the returns on NPS equal to or better than other saving instruments? Kindly guide.

Ans: You are required to provide details of long-term capital gains (LTCG) from any mutual funds or stocks sold in a financial year during your ITR filing, even if it is below the Rs 1 lakh threshold. You can claim this deduction and would not need to pay tax.

Answer to question 1: The deduction that can be claimed on NPS is for Rs 50,000 which is over and above the deduction of Rs 1.5 lakhs under section 80C. Since you fall under 30 per cent tax bracket, you can consider this option to save tax. It can anyways be towards your retirement need, which is a long term requirement for you.

Answer to question 2. NPS is a good option for investors who are looking for longer tenure of investments.

It is one of the lowest cost investment options. You can choose funds/equity allocations within the limits. However, it does not allow 100 per cent investment into equity.

If you choose higher equity exposure options, the returns would be closer to an equity hybrid fund. In the long term, returns are likely to be much higher than debt options, but lower than a 100 per cent equity fund in the long term.

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