However, this no-tax simit for salaried individuals can be extended when taking into account, standard deduction and National Pension System (NPS) investments.

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The standard deduction goes up to ₹75,000, and when this is combined with about ₹96,000 through NPS contributions, up to to ₹13.7 lakh per annum can be exempted from tax.

Section 80CCD(2) allows tax deduction of up to 10% of basic salary invested in NPS and up to 14% to central employees.

For an annual income of ₹13.7 lakh with a base salary of 50% ( ₹6.85 lakh), an NPS contribution at 14% would amount to ₹95,900. This, when combined with the ₹75,000 standard deduction, would eliminate the tax liability on the entire ₹13.7 lakh. However, this is possible only if the employer offers the NPS benefit as part of cost to company. Employees cannot opt for it on their own.

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A key fact is that only 2.2 million individuals have enrolled for the scheme despite it existing for nearly a decade, according to the report.

One of the primary reasons for this is that the extended NPS lock-in period and withdrawal limitations at maturity discourage many investors.

Apart from this, pre-retirement withdrawals are also restricted to exceptional circumstances. Also only 60% can be withdrawn upon maturity, whilst 40% must be invested in an annuity for lifetime pension.

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However, there are advantages. NPS funds have outperformed mutual funds in similar categories because it maintains the industry’s lowest fund management charges at 0.09% annually, compared to 1-1.5% for the most economical mutual fund, according to the report.