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CA Intermediate · Taxation · Deductions from Gross Total Income

Mr. Harish Pillai is a salaried resident individual who has opted for the new tax regime under the Income-tax Act, 2025 for tax year 2026-27. His salary comprises basic pay of Rs 8,00,000 and dearness allowance of Rs 2,00,000, which forms part of pay for retirement benefits. His employer contributed Rs 1,60,000 to his NPS account, and Harish contributed Rs 50,000 himself. What is the maximum deduction allowed for NPS contributions?

The maximum deduction is Rs 1,40,000. Under the new regime, only the employer's NPS contribution is deductible, up to 14% of basic pay plus dearness allowance forming part of retirement benefits. That salary is Rs 10,00,000, so the cap is Rs 1,40,000. The employee's own contribution is not deductible.

  1. ARs 1,12,000
  2. BRs 1,40,000Correct
  3. CRs 1,60,000
  4. DRs 1,90,000

Explanation

Under the new regime, the deduction for employer contribution to NPS is allowed up to 14% of salary, which for this purpose is basic pay plus dearness allowance forming part of retirement benefits. Salary is 8,00,000 + 2,00,000 = Rs 10,00,000, and 14% of that is Rs 1,40,000. The employer contribution of Rs 1,60,000 is capped at this amount. The employee's own contribution gets no deduction under the new regime. Rs 1,12,000 wrongly uses basic pay only.

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