NPS calculator: Here's how national pension scheme can help you save tax

The National Pension Scheme (NPS) India is a voluntary long-term investment plan for retirement by the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government. This pension programme is open to employees from the public, private and even the unorganised sectors, except those from the armed forces.

NPS for tax saving

Employees who contribute to NPS can receive the following tax benefits for their contributions:

• Under Section 80C of the Income Tax Act of 1961, NPS contributions of up to Rs 1.50 lakh are tax exempt.
• This is not the only tax benefit of NPS.
• Tier-1 NPS accountholders can get a further deduction of Rs 50,000 under Section 80CCD(1B).
• With this, the total NPS contributions of Rs 2 lakh become tax free.
• Now, the thing is that if your gross salary is Rs 10 lakh a year, can NPS contributions help you reduce your tax to zero.
• For that, only NPS contributions are not adequate. They will certainly help you a great deal, but you need to claim more deductions. Here's what you can do to bring your tax to zero.

HRA exemption

The maximum House Rent Allowance (HRA) under Section 10 (13A) is calculated as follows:

• Actual HRA received from the employer.
• 50 per cent of the basic salary for employees living in metro cities and 40 per cent for those staying in non-metro cities.
• If your salary is Rs 10 lakh annually, you can easily claim an HRA of Rs 1 lakh.
• After Rs 2 lakh deductions on NPS and Rs 1 lakh claims on HRA, your taxable income will come down to Rs 7 lakh.  
• You can claim a further deduction of Rs 1.25 lakh as reimbursement claims in the form of entertainment, transport, telephone, and stationery bills. You can include these in your salary after talking to your company's HR. Most of the offices have provisions for these reimbursement claims. 
• With that deduction, your taxable salary will remain at Rs 5,75,000.

Deductions on health insurance premiums

Under Section 80(D), you can claim deductions of Rs. 25,000 (up to Rs. 50,000 if the insured is a senior person) on paid health insurance premiums. Deductions are allowed for the individual, spouse, children, and parents. 

With the health insurance premium claim, the taxable income will be Rs 5,50,000. 

Rebate under Section 87A

• You get a maximum rebate of up to Rs 12,500 under Section 87A of the Income-Tax Act for the financial year 2023-24.
• With that deduction, your taxable income remains Rs Rs 5,37,500.
• You also get a standard deduction of Rs 50,000 under Section 16 (1a).
• After that deduction, your taxable income will be Rs 4,87,500. 
• In the old tax regime, you need to pay a five per cent income tax on the income below Rs 5 lakh. But later on, you get a tax rebate, which means your income tax becomes zero.