Whenever the topic of tax saving arises, the first thing that usually comes to the minds of most salaried individuals is the ₹1.5 lakh limit. But did you know that, under the new provisions of the Income Tax Act, 2025, you can save additional tax even beyond this ₹1.5 lakh threshold?
CA Garima Vajpayee has shared some tips regarding tax savings through EPF vs. NPS with Zee Business. Indeed, the right combination of EPF and NPS not only strengthens your retirement planning but also shields your hard-earned income from the taxman's scissors.
So, let's understand how you can utilize these two schemes to reduce your tax liability.
EPF: Your Automatic Tax Saver (Section 123)
According to CA Garima Vajpayee, EPF contributions are eligible for deductions under Section 123 of the Income Tax Act, 2025, which carries an overall limit of ₹1.5 lakh. Since most salaried employees already contribute to EPF, a portion of this limit is typically utilized automatically through deductions from their salary.
NPS: A ₹50,000 'Bonus' Exemption (Section 124(3))
NPS offers an additional benefit. While contributions to NPS can be claimed within the ₹1.5 lakh limit, it also allows you to claim an extra deduction of up to ₹50,000 under Section 124(3) of the Income Tax Act, 2025. This means that even if you have already exhausted your Section 123 limit through EPF, LIC premiums, home loan principal repayments, or other investments, you can still save more tax by investing in NPS.
Old vs. New Tax Regime: Where Does the Advantage Lie? For taxpayers opting for the old tax regime, this additional deduction of ₹50,000 annually can result in significant tax savings. However, if you have chosen the new tax regime, tax benefits on your personal contributions to EPF and NPS are generally not available. In such cases, only the employer's contribution to the NPS continues to offer tax benefits.
Tax Section (Act 2025) | Investment Options | Maximum Exemption Limit
Section 123 | EPF, LIC, PPF, Home Loans | ₹1,50,000
Section 124(3) | NPS (Additional Investment) | ₹50,000
Total Potential Exemption | EPF + NPS (Combined) | ₹2,00,000
My advice for salaried taxpayers is simple:
Treat EPF as your primary retirement savings vehicle, and consider the NPS only if you desire additional tax deductions and are comfortable investing for the long term. By utilizing them in tandem, EPF and NPS can help you build a robust retirement corpus while simultaneously reducing your tax liability.
Practical Tip: How to Plan?
My advice for salaried taxpayers is straightforward. You should regard EPF as your primary retirement savings instrument, as it is secure and offers fixed returns. However, if you wish to further reduce your tax liability and possess the capacity to invest for the long term, you should definitely incorporate NPS into your investment portfolio. When you combine EPF and NPS, it not only reduces your current tax burden but also assists you in building a substantial retirement fund for your later years.
Disclaimer: This content has been sourced and edited from News18 Hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
