Application of NPD: What is it and when is it worth applying in 2025?
Many employees in Lithuania do not know whether NPD is applied to them – and this directly affects their take-home pay. NPD (non-taxable income amount) allows reducing the taxable portion of income and increasing the received salary.
In this article you will learn:
- What NPD is and how it works;
- When it's worth applying it, and when it’s better not to;
- How it affects the annual declaration and overpaid income tax (GPM).
What is NPD? (Non-taxable Income Amount)
NPD is the amount that is not taxed with personal income tax (GPM). This means that if your income does not exceed a certain threshold, part of it is taxed at a lower GPM rate or not taxed at all.
In 2024, the basic NPD amount was €747, but an increase is planned from 2025 – the exact amount may still be adjusted according to economic indicators.
How is NPD calculated?
NPD depends on monthly income. The higher the salary, the smaller the NPD amount applied. If income exceeds the set threshold, NPD is not applied.
Example 1: If an employee’s salary is €1000 gross and the applicable NPD is €747, then only €253 is taxed with GPM.
Example 2: If the salary reaches €2000, the applicable NPD may be less than €200 or even zero – depending on the formulas applied by VMI.
How does NPD affect salary?
By applying NPD, the take-home amount is higher, since GPM is calculated from a smaller portion of income.
Example: If without NPD an employee receives €850 net, with NPD they may receive around €950 (depending on the exact amounts and formula used).
When is NPD applied?
NPD is applied to employees who receive income from employment and:
- Work under an employment contract;
- Have not submitted a request to not apply it;
- Their income does not exceed the upper limit (set by VMI each year).
Application occurs automatically, if the employee has not submitted a request to not apply NPD.
How to determine whether to apply NPD or not?
By applying NPD, a higher amount is received each month, but at the end of the year, if additional income is received (e.g., from individual activity), the GPM overpayment may need to be returned to the state.
Arguments for:
- Higher monthly income;
- Simple system, no additional actions needed.
Arguments against:
- If additional income is received at the end of the year, you may face a GPM underpayment;
- You may need to pay more when submitting an income declaration.
How to submit a request not to apply NPD?
An employee can submit a free-form request to their employer to not apply NPD. Usually, this is done through the accounting department, and the request becomes effective from the start of the next month.
Most common mistakes and what’s important to know
- Improper request: employees forget to submit or withdraw the request;
- Incorrect evaluation of additional income;
- Applying NPD when it’s not needed – which may lead to having to pay GPM at year-end.
It’s important to continuously review your income structure and check whether NPD is still being applied appropriately.
NPD calculators and helpful resources
To accurately assess NPD’s impact on your salary, use the VMI calculator.
You can also use accounting programs that automatically calculate the applicable NPD. Rivile ERP does this automatically based on entered payroll data.
FAQ about NPD application
How much does salary increase if NPD is applied?
On average, the net salary increases by about €60–100, depending on received income.
Is it worth applying NPD if you have additional income (e.g., individual activity)?
Not always – it’s worth assessing annual income and possible GPM underpayment.
Can you change your decision – e.g., from non-application to application during the year?
Yes, you can submit a new request to the employer – it will take effect from the next month.
How does NPD affect the annual income declaration and possible GPM refund?
If it was applied inaccurately, a GPM overpayment or underpayment may occur at year-end.
Is NPD applied to pensioners, students, or part-time workers?
Yes, if they work under an employment contract and their income does not exceed the specified limit.
Recommended reading:
- Minimum wage in Lithuania
- Income declaration
- Individual activity
Rivile ERP – a solution that helps accurately apply NPD, manage payroll accounting, and avoid mistakes when declaring income. Learn more about our payroll module.
