The Union Budget 2025 has revolutionised tax planning for salaried professionals through strategic adjustments to tax slabs and retirement savings incentives. These changes – particularly the enhanced National Pension System (NPS) benefits – create unprecedented opportunities to align retirement planning with tax optimisation.
How the New Tax Regime Supercharges NPS Benefits
The government has made important changes to income tax in Budget 2025. The biggest change is that people can now earn more money before they must pay taxes. Before, people did not have to pay tax if they earned ₹7 lakh or less per year. Now, this limit has increased to ₹12 lakh per year.
People who earn ₹12 lakh or less can receive a standard deduction of ₹75,000 and a tax rebate of ₹60,000. This means they will not have to pay any income tax. This change helps middle-class people and those with higher salaries by letting them keep more of their earnings.
Overall, raising the tax limit to ₹12 lakh per year is good for many people. More individuals will be exempt from paying income tax, which allows the middle class to have more money. The government made this change to help taxpayers.
Key Highlights of NPS Benefits
1. Expanded Tax-Free Income Threshold
The revised regime allows salaried individuals to earn ₹13.7 lakh annually without tax liability when combining:
- Base tax exemption: ₹12 lakh
- Standard deduction: ₹75,000
- NPS employer contribution: 14% of basic salary (up from 10%)
Example: A ₹13.7 lakh earner with ₹1.7 lakh in NPS contributions through Section 80CCD(2) achieves zero tax obligation while building retirement corpus.
2. Turbocharged Employer Contributions
Employers can now claim deductions for 14% of basic salary contributed to NPS (vs 10% earlier). This creates a win-win:
- Employees get larger tax-free retirement savings
- Organisations enhance compensation packages tax-efficiently
How These Changes Affect Salaried Individuals
The new tax rules and benefits for retirement plans can help salaried people save more money. Here’s how they affect different income groups:
- For Middle-Income People: Those who earn between ₹7 lakh and ₹12 lakh a year can now pay little to no tax due to a higher tax rebate limit.
- For Higher Income People: Individuals earning up to ₹13.7 lakh per year can invest money in their NPS retirement account. This action can reduce the taxable amount of their income.
Conclusion
The Union Budget 2025 has made it easier for salaried individuals to save on taxes. The government has updated income tax brackets and improved benefits for schemes like the NPS. These changes provide better tools for financial planning and increase savings. Overall, these updates encourage people to save more and lower their tax bills. Whether you’re a middle-income worker or planning for retirement, knowing about these changes can help you make smart choices and maximise your savings.