Salaried individuals can potentially pay zero tax on an annual income of up to ₹13.7 lakh by leveraging the National Pension System (NPS) and standard deductions. Under Section 80CCD(2), up to 14% of an employee’s basic salary invested in NPS is tax-deductible, reducing taxable income significantly.
With a ₹75,000 standard deduction and an assumed 50% basic salary of ₹6.85 lakh, the NPS contribution at 14% amounts to ₹95,900—bringing taxable income effectively to zero.
However, this benefit is only available if the employer includes NPS in the salary structure, as employees cannot opt for it independently.
Despite being available for nearly a decade, only about 2.2 million individuals have enrolled due to concerns over the long lock-in period and restrictions on withdrawals. Upon retirement, only 60% of the NPS corpus can be withdrawn, while 40% must be invested in an annuity for a lifelong pension.
Tax experts believe more awareness and flexibility could increase adoption, allowing more taxpayers to benefit from significant savings.
