Finance Minister Nirmala Sitharaman’s Budget 2025 introduces significant tax-saving measures for salaried individuals. A key highlight is the increased tax rebate limit under the New Tax Regime (NTR), benefiting those earning up to ₹12 lakh annually. By leveraging EPF and NPS tax savings, salaried taxpayers can minimize their tax liability and retain more disposable income. Utilizing these investment options ensures greater financial security while maximizing tax benefits.
Key Highlights of Budget 2025 for Salaried Individuals
- The tax rebate limit has increased from Rs 7 lakh to Rs 12 lakh under the New Tax Regime (NTR).
- The Standard Deduction has been raised to Rs 75,000, which reduces taxable income.
- The employer’s contribution to the National Pension System (NPS) has increased to 14%, making NPS an even more attractive option for EPF and NPS tax savings.
- Both EPF and NPS tax savings play a vital role in reducing overall tax liabilities.
New Tax Regime Vs Old Tax Regime
The New Tax Regime (NTR) offers simplified tax slabs with fewer deductions, while the Old Tax Regime (OTR) provides exemptions and deductions like HRA, Section 80C, 80D, and home loan interest benefits. With the recent changes, the NTR has become a more viable option for salaried individuals who strategically plan EPF and NPS tax savings.
Revised Tax Slabs and Rebates for FY 2025-26
Here’s a quick look at the revised tax slabs under the New Tax Regime for FY 2025-26:
| Income Slab | Tax Rate |
|---|---|
| Up to Rs 3 lakh | 0% |
| Rs 3 lakh – Rs 6 lakh | 5% |
| Rs 6 lakh – Rs 9 lakh | 10% |
| Rs 9 lakh – Rs 12 lakh | 15% |
| Above Rs 12 lakh | 20% |
How the Tax-Free Limit Increased to Rs 12 Lakh
The tax-free limit of Rs 12 lakh under the New Tax Regime is made possible by:
- A standard deduction of Rs 75,000.
- A tax rebate of Rs 60,000 under Section 87A.
- Contributions to EPF and NPS, which further reduce taxable income and make EPF and NPS tax savings a powerful tool.
Role of EPF and NPS in Tax Savings
Understanding Employees’ Provident Fund (EPF)
What is EPF?
The EPF is a retirement savings scheme that involves contributions from both employees and employers, offering a risk-free interest rate of 8.25%. Through EPF and NPS tax savings, employees can reduce their taxable income significantly.
EPF Contribution Rules:
- Employees contribute 12% of their basic salary.
- Employers match the contribution, with a portion directed towards pension.
- The Voluntary Provident Fund (VPF) option allows employees to contribute more than the mandatory 12%.
Tax Benefits of EPF:
- Employer’s EPF contribution (up to 12%) is tax-free.
- Interest earned on EPF is tax-free for contributions up to Rs 2.5 lakh annually.
- Withdrawals after 5 years of continuous service are tax-exempt.
National Pension System (NPS) and Its Tax Benefits
What is NPS?
The NPS is a government-backed pension scheme that allows individuals to create a retirement corpus while reaping tax benefits. With higher flexibility and tax-free benefits, EPF and NPS tax savings become even more crucial as salaried taxpayers plan for retirement.
Changes in Section 80CCD(2)
In Budget 2025, the employer’s contribution to NPS has been increased from 10% to 14% of the employee’s basic salary, providing more significant EPF and NPS tax savings opportunities.
How a Salaried Employee Can Reduce Taxable Income to Rs 13.70 Lakh
For an individual earning Rs 13.7 lakh annually:
- 50% of the basic salary is Rs 6.85 lakh.
- The employer contributes 14% of the basic salary to NPS (Rs 95,900).
- A standard deduction of Rs 75,000 is applied.
By maximizing EPF and NPS tax savings, the individual’s taxable income can be reduced to zero, benefiting from the New Tax Regime’s full tax-free limit.
Comparison Between NPS and Other Investment Options
| Investment Option | Interest Rate | Tax Benefits |
|---|---|---|
| NPS | 10-12% | Up to Rs 96,000 deduction |
| EPF | 8.25% | Tax-free withdrawals (conditions apply) |
| PPF | 7.1% | Exempt-Exempt-Exempt (EEE) |
| Mutual Funds | Varies | LTCG tax applies |
Conclusion
Budget 2025 has brought a host of tax-saving opportunities for salaried individuals, particularly through EPF and NPS tax savings. By taking advantage of the increased employer contributions and smarter investment strategies, individuals can minimize their tax liabilities while securing a financially stable future. The potential for EPF and NPS tax savings is substantial, making it an essential part of modern tax planning.
Frequently Asked Questions
The new income tax exemption limit for 2025 is ₹12 lakh. Individuals with an income of ₹12 lakh or less will not be required to pay any taxes.
The new tax regime reduces the tax burden on middle-class taxpayers, allowing them to keep more of their income. This will increase disposable income and stimulate economic spending.
Yes, salaried individuals will benefit greatly from the new tax slabs, with no tax payable on income up to ₹12 lakh and significantly lower tax rates on higher earnings.
The increased tax rebate under Section 87A further reduces the tax liability for eligible taxpayers, making the tax regime even more favorable for those earning up to ₹12 lakh.
The new tax regime will take effect from the beginning of the financial year 2025-26, starting on April 1, 2025, pending approval by Parliament.
