National Pension Scheme/NPS Tax Benefit

Saving for the sunset years of life is among the most important aspects of financial planning. National Pension System (NPS) is a low cost equity market-linked investment meant for retirement planning. It offers returns based on market performance as well as attractive tax benefits.

National Pension System (NPS)

is an investment cum pension scheme initiated by Government of India to provide old age security and pension of all citizen of India. The NPS was rolled out for all citizens of India on May 01, 2009. Pension Fund Regulatory and Development Authority (PFRDA) regulate the Scheme. Moreover, During the budget of 2019-20, the deduction of Rs. 50,000 was retained for the National Pension System. Excited to know more? Here’s everything you need to know about the tax benefits under NPS.

NPS Structure

The NPS structure is divided into two accounts i.e. Tier-I and Tier-II. The Tier I is a non-withdrawable account. On the other hand, the Tier II account is a voluntary withdrawable account, which can only be held by those who have an active Tier I account. The point to be noted is that, all contributions made to the Tier I account are eligible for tax benefits. The following are the tax benefits for NPS Tier I accounts -

Tax Benefits for Salaried Individuals

Up to 10 percent of the salary (basic + dearness allowance) invested into the NPS can be claimed as a deduction from the taxable income under the section 80CCD (1) of the IT Act for each fiscal year. However, the amount is subject to a limit of Rs 1.5 Lakh under the Section 80C. An additional deduction of Rs 50,000 is also applicable for NPS under section 80 CCD(1B) , adding up the total deductible to 2 Lakhs.

Tax Benefits for Contributions Routed Through Employer

Under the NPS an employee has the option to deposit the contribution directly or route the contribution through his/her employer. In case the investment is routed through the employer a deduction of up to 10 percent of the salary (basic + dearness allowance) is allowed under the section 80CCD (2). However, there is no cap on the amount of deduction that can be claimed by the employee as long as it does not exceed 10percent of the salary.

Tax Benefits for Self-Employed Professionals

Self-employed professionals can claim investment up to 20 percent of gross annual income as deductible from their taxable income. However, the deductible is subject to a limit of Rs. 1.5 lakh. Since the budget announcement of 2015-16, Self-employed professionals can also claim an additional deductible of Rs. 50,000 under the Section 80CCD (1B) of the Income Tax Act, 1961.

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National Pension System (NPS)

Avail various benefits on your pension through the National Pension System

Invest in National Pension System