New Tax Regime Becomes More Rewarding from April 2025
The Finance Act, 2024 has introduced a significant change that empowers private sector employees to benefit more from the National Pension System (NPS).
Effective from April 1, 2025, employers in the private sector can contribute up to 14% of Basic + Dearness Allowance (DA) towards an employee’s NPS account — up from the earlier 10%.
This deduction is allowed under Section 80CCD(2) but only under the new tax regime.
What’s the Change?
- Earlier:
Private employers were allowed to contribute up to 10% of Basic + DA to NPS, with the contribution being tax-deductible under Section 80CCD(2). - Now (From FY 2025-26):
Employers can contribute up to 14%, bringing parity with government employees.
This means employees using the new tax regime can now claim a higher tax deduction without affecting their take-home salary.
Why It Matters Under the New Tax Regime
The new regime does not allow most deductions like:
- 80C (PF, LIC, tuition fees)
- HRA
- 80D (medical insurance)
- Home loan interest (Section 24)
But it does allow:
- Standard deduction of ₹75,000 (from Budget 2025)
- Employer’s NPS contribution up to 14% of salary
So this increased NPS contribution becomes a critical tool for tax planning under the new regime.
Tax Saving in Real Numbers
Suppose your Basic + DA = ₹12,00,000 per annum.
| Employer Contribution | Amount Contributed | Tax Deduction |
|---|---|---|
| 10% | ₹1,20,000 | ₹1,20,000 |
| 14% | ₹1,68,000 | ₹1,68,000 |
That’s an additional ₹48,000 deduction, completely funded by your employer — boosting your retirement savings while reducing your taxable income.
What You Need to Do
This benefit will not be applied automatically. Employers will need to revise their salary structures and internal policies.
Steps for Employees:
- Contact your HR or Payroll team
- Request revision of employer NPS contribution to 14% of Basic + DA
- Ensure it is included in your salary structure from April 2025
Important Points to Remember
- The total tax-free limit for employer contributions to NPS + EPF + Superannuation remains capped at ₹7.5 lakh per year.
- Any contribution beyond that limit will be taxed as a perquisite.
- The enhanced 14% contribution is only applicable under the new tax regime.
- Under the old regime, private employers can still only contribute 10% for tax benefits.
Frequently Asked Questions
Q. Will the 14% NPS contribution be applied automatically?
No. Your employer must choose to revise their policy. Employees are advised to initiate this discussion.
Q. Can I claim both 14% NPS contribution and ₹50,000 under Section 80CCD(1B)?
No. The ₹50,000 self-contribution deduction is only allowed under the old regime. The 14% employer contribution is allowed under the new regime.
Q. Is this applicable to all companies?
Yes, any employer can opt to contribute 14% to NPS, regardless of size or sector.
Final Thoughts from Stox N Tax
This update gives private sector employees a rare opportunity to enjoy a higher tax deduction — fully funded by their employer — under the new tax regime.
But this benefit depends on action. Employers won’t update their policies unless you ask.
Start now:
- Reach out to HR
- Explain the change
- Ensure you don’t miss out in FY 2025-26
Note: While most deductions are disallowed in the new regime, employer contribution to Provident Fund (PF) continues to remain exempt and is not impacted by the change in regime.
For more updates like this, keep following Stox N Tax — your trusted source for simplified tax insights.
Stox N Tax 
Leave a comment