Corporate NPS: Chartered Accountants say that companies are now showing interest in restructuring the salary package of their employees according to Corporate NPS. Along with this, interest is also being seen from the employees. Especially those employees who do not claim HRA and are now adopting the new scheme.
The new scheme and increasing awareness about salary among employees is considered to be the main reason behind this. Bhavesh Shah, Senior Partner, Mumbai-based Hasmukh Shah & Company LLP said, “This April, many companies have inquired about merging their employees’ salary structure with Corporate NPS. Companies are now considering adding NPS to the flexi benefit portion of CTC.” This can be a smart way to save your taxes.
Golden opportunity to save in the new system
Mayank Mohanka, Founder and Director, TaxAaram.com said, “Special allowances are taxable, due to which companies are now converting this portion to Corporate NPS to reduce the employee’s taxable income.” Taxman’s Vice President Naveen Wadhwa said, “The 14% NPS contribution exemption in the new system is more than the 10% of the old system.
Because of this, employees are now seen leaning towards the new system.” He says that employees earning ₹ 12.75 to ₹ 14 lakh annually can bring their income within the tax exemption limit by choosing NPS. This is an effective way to improve your tax planning.
Know who will benefit and who will lose
Mayank Mohanka says, “Only those employees who are paying rent of ₹ 85,000 or more and claim HRA benefit from the old system. Most of the other salaried clients have now adopted the new system.”
According to Wadhwa, only those employees can benefit from staying in the old system whose salary is more than ₹ 24 lakh and who can claim tax exemption of more than ₹ 8 lakh. HRA is the only big tax exemption here that does not have a fixed upper limit. So, if you live on rent and claim HRA, you should carefully evaluate your options.
Be cautious while paying rent to parents
Many employees pay rent to their parents to claim HRA in the old system. However, experts say that a sudden huge increase in rent can lead to an investigation by the Income Tax Department. Mumbai-based CA Chirag Chauhan says, “It is fine from the tax point of view, but those who are trying to evade tax by increasing the rent can face income tax investigation under section 143(3).” So, if you are paying rent to your parents, it is extremely important to have a registered rent agreement and rent receipts. This will save you from any legal trouble.