New Tax regime: Chartered accountants say that companies are now showing interest in restructuring the salary package of their employees according to the Corporate NPS (National Pension System). Along with this, interest is also being seen from the employees. Especially those employees who do not claim HRA (House Rent Allowance) and are now adopting the new tax regime
New Tax regime: Chartered accountants say that companies are now showing interest in restructuring the salary package of their employees according to the Corporate NPS (National Pension System). Along with this, interest is also being seen from the employees. Especially those employees who do not claim HRA (House Rent Allowance) and are now adopting the new tax regime. The new tax regime and the increasing awareness about tax savings among employees are considered to be the main reasons behind this.
Bhavesh Shah, senior partner at Mumbai-based Hasmukh Shah & Co LLP, said, “This April, many companies have received inquiries about merging their employees’ salary structure with corporate NPS. Companies are now considering integrating NPS in the flexi benefit portion of CTC (cost to company).”
Opportunity to save in new tax regime
While most tax exemptions have been removed in the new tax system, up to 14% deduction is still available on NPS contribution made by the company to corporate NPS under section 80CCD (2). This is why salaried employees are trying to reduce their tax liability by adopting it.
Mayank Mohanka, founder and director, TaxAaram.com, said, “Special allowances are taxable, so companies are now converting this portion to corporate NPS to reduce the taxable income of the employee.”
Taxmann’s Vice President Naveen Wadhwa said, “The 14% NPS contribution exemption in the new tax regime is more than the 10% of the old system. Due to this, employees are now seen leaning towards the new system.” He says that employees earning Rs 12.75 to 14 lakh annually can bring their income within the tax exemption limit by choosing NPS.
Only those with HRA stick to the old structure
Mayank Mohanka says, “Only those employees who are paying rent of ₹ 85,000 or more and claim HRA are benefited by the old tax system. Most of the rest of the salaried clients have now adopted the new system.”
According to Wadhwa, only those employees can benefit by staying in the old tax regime whose salary is more than ₹ 24 lakh and who are able to claim tax exemption of more than Rs 8 lakh. HRA is the only major tax exemption here which has no fixed upper limit.
Be careful while paying rent to parents
Many employees pay rent to their parents to claim HRA in the old tax system. However, experts say that a sudden huge increase in rent can lead to investigation by the Income Tax Department. Mumbai-based CA Chirag Chauhan says, “This is correct from the tax point of view, but those trying to save tax by showing very high rent may face investigation by the Income Tax Department under Section 143 (3).” So, if you are paying rent to your parents, it is important to have a registered rent agreement and rent receipts.
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