If the same question in your mind is that how to save tax after increasing salary, then it is a matter of relief that some such changes have been made in the budget 2025, which can also save tax on income of more than Rs 12 lakh. How? Let us understand in easy language how you can reduce your tax liability with the help of NPS and VPF.

What the new tax system says?

The tax exemption limit has been increased from 7 lakh to 12 lakhs under New Tax Regime in Budget 2025. This means that if someone’s annual income is up to Rs 12 lakh, then that standard deduction will not pay any tax after a tax exemption of 75,000 and 60,000. But the problem comes when your salary is above it. Can tax be saved even then?

here comes NPS

Yes, the government has given great relief in the National Pension System (NPS). Now under Section 80CCD (2), the employer (employer) can contribute up to 14 % of your basic salary in NPS, which will be completely tax-free. Earlier this limit was 10 percent.

This means that if your salary is 13.7 lakhs annually and your basic salary is 6.85 lakhs, then your employer collects 14 % of it i.e. 95,900 NPS and you take a standard deduction of 75,000, then your taxable income can be zero."Text-Align: justify;"> So what will happen to VPF?

Voluntary Provident Fund (VPF) i.e. the scheme of Provident Fund in which you can deposit up to 100 percent of your basic salary and DA. The interest rate in this is 8.25 percent and it is a fully government guarantee investment.

But one of the big things in the new tax regime is that the exemption received under section 80C does not apply. That is, even if you invest money in VPF, then your taxable income will not be reduced. Yes, it is so important that the interest available at VPF contribution up to 2.5 lakhs is tax-free. But the interest on the amount above it will be taxable.

nps vs vpf

which scheme is better?

If you come under new tax regime, then NPS is more beneficial for you. Especially when your salary is more than 12 lakhs. The reason for this is that the employer contribution has been reduced to 14 per cent tax free, which can reduce your taxable income.

Although VPF is also a safe and stable interest giving option, it does not give new tax benefit. However, if you are in old tax regime, then you can get the benefit of tax deduction on both NPS and VPF.

Save tax from NPS, increase saving from VPF

If your salary has gone up above 12 lakhs after the hike, then there is no need to panic. You can make your taxable income up to 13.7 lakh tax-free by using the employer contribution in NPS wisely. VPF, although not a means of saving tax (in the new system), still remains a great savings tool for a long period.

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