My CTC is over Rs 50 lakh. For 2024–25, I opted for the new tax regime and contributed 14% of my basic to NPS. I also paid Rs 40 lakh towards my son’s education loan, with my homemaker wife as co-borrower. If yes, how much of my NPS contribution is tax-deductible? Also, how should we split the education loan interest for exemption?
Amit Maheshwari Tax Partner, AKM Global:
You may opt for the old tax regime while filing your ITR. As a salaried individual, you can make this choice each financial year. Regarding your second query, under Section 80CCD(1) of the Income Tax Act, you may claim a deduction for NPS contributions up to 10% of your salary (Basic + DA) or the actual amount contributed, whichever is lower, subject to the overall limit of Rs 1,50,000. Additionally, an extra deduction of Rs 50,000 under Section 80CCD(1B) is available beyond this limit. Therefore, you can claim a total deduction of up to Rs 2,00,000 for your NPS contributions. Regarding your third query, as per Section 80E of the Act, the interest paid on an education loan taken from an approved financial or charitable institution for higher education qualifies for a tax deduction, since the loan was taken for your son. Please note that the deduction is based on who is making the payment of interest, rather than who initially borrowed the loan. As your wife is a homemaker with no taxable income and assuming you have repaid the interest amount, you are eligible to claim the full deduction on such amount. Also, ensure you obtain a certificate from the financial institution detailing the interest and principal components of the loan repayment. However, the deduction is available only for eight consecutive years, starting from the year you begin repaying the loan.
Also read | What happens if you do not inform your tax regime choice to your employer for TDS on salary?
The employer’s contribution to the NPS has been increased from 10% to 14% under the new tax regime. Can an individual who opted for the old tax regime before the Budget announcement switch to the new tax regime to avail of the 14% employer contribution? Is there any government circular or notification allowing such a change due to the Budget update? Waiting till ITR filing seems too late as the employer would have already contributed at the 10% rate applicable under the old tax regime. Kindly provide clarification or share relevant circulars, if available.
Amit Maheshwari Tax Partner, AKM Global:
If you had initially chosen the old tax regime, but now wish to switch to the new regime to benefit from the increased NPS deduction (14% employer contribution under Section 80CCD), here are a few points you need to consider. Under the old tax regime, deductions for the employer’s NPS contributions are capped at 10% of the salary, while the new regime allows up to 14%. Employers may contribute more, but deductions depend on the regime chosen while filing the income tax returns. The current rules require employees to notify their employer of their tax regime preference. While mid-year changes are unclear, you can check with your organisation if adjustments are possible. Employees can still choose between the two regimes during ITR filing, overriding earlier declarations in order to optimise tax benefits.
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