Tax Benefits of NPS Investment

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NPS is a wonderful device for retirement making plans, particularly for personal sector staff. Many other people within the monetary advisory house have doubted this product because of its tax inefficiency. They imagine it much less tax environment friendly due non-clarity in tips of tax saving NPS. This article is the most recent replace on tax saving advantages of NPS until date.

Our nation has advanced in each box together with the private finance sector. The merchandise have advanced in response to world practices and to convey parity with different merchandise.

Its counterpart is US 401Ok plans. The distinction in India is that during US many firms set up the 401Ok plans. But in our nation, it’s only one frame referred to as PFRDA who’s managing the NPS construction.

NPS has additionally advanced in phrases of function and choices. But right here I’m going to discuss tax advantages handiest.

These tax advantages are 2 sorts:

  • Current advantages
  • Post Investment Tax Benefits

Let’s see the main points

Current Benefits of New Pension Scheme

Section 80CCD(1) of Income Tax Act 1961

  1. You know for in case your employer is a member of and PF accept as true with like EPFO they are going to deduct 12% of your elementary and similarly give a contribution the same quantity and deposit to your EPF account. But for nonmembers, NPS provides an answer. Under phase 80CCD of Income Tax Act 1961, a salaried particular person can give a contribution as much as 10 p.c of his wage (Basic+ DA) topic to a most of Rs 1.five lakh in a 12 months in NPS tier-I account to get a tax deduction.

(Remember Employer isn’t sure to give a contribution in any way. An employer can give a contribution any quantity however deduction prohibit for Income Tax portfolio is capped at 10% of elementary handiest. Also, the employer can give a contribution to NPS despite the fact that they’re contributing to EPF. See level five for extra rationalization)

2. Self-employed buyers can deposit as much as 20 p.c of their gross source of revenue in a 12 months topic to a most of Rs 1.five lakh in NPS tier I account to get a tax deduction. This prohibit used to be 10 p.c

So the ease is prolonged to self-employed and execs too.

Section 80CCD(1B) of Income Tax Act

three. Salaried people can get an extra tax deduction of Rs 50,000 by way of making an investment in NPS underneath phase 80CCD(1B) of Income Tax Act over and above the prohibit of Rs 1.five lakh underneath Section 80CCD.

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four. A self-employed particular person can even get an extra deduction of Rs 50,000 for making an investment in NPS underneath phase 80CCD(1B).

(Point three & four: This prohibit is over the Sec 80 C prohibit of Rs 1.five lakhs consistent with 12 months. So further 50000 deduction is helping save extra tax. No different product is authorized for this additional deduction)

Section 80CCD(2) of Income Tax Act

five. Under phase 80CCD(2), if an employer contributes as much as 10 p.c of wage(elementary + DA) of an worker to NPS, then that can even qualify for tax deduction. The just right factor this is that there is not any higher cap on contribution to NPS underneath this phase. One can transform his tax construction and will give a contribution to NPS thru his employer to scale back his tax legal responsibility.

Here is an instance:

tax benefits of nps investment - Tax Benefits of NPS Investment

Mahesh is a central authority worker and his employer deducts Rs 62,000 consistent with annum (which is 10% of elementary + DA) from wage as worker’s contribution in NPS. It additionally contributes Rs 62,000 consistent with annum as employer’s contribution in NPS. How and underneath which phase must he declare tax receive advantages on NPS?

Let’s take the straightforward section first. Employer’s contribution in NPS can be eligible for tax deduction u/s 80CCD(1).

The worker has a call as to which phase [80CCD(1) or 80CCD(1B)] he desires to turn his contribution.  Ideally he must display Rs 50,000 funding in NPS u/s 80CCD(1B). The tax deduction on leisure Rs 12,000 can also be claimed u/s 80CCD(1). The phase 80CCD(1) together with Section 80C has funding prohibit eligible for tax deduction as Rs 1.five lakhs. So he must make an extra funding of Rs 1,38,000 in Section 80C to avoid wasting most tax. In all, he can save Rs 2 lakhs tax u/s 80C and 80CCD(1B).

Benefits of NPS Investments – On Withdrawal

  • Tax regulations on partial withdrawal: You can in part withdraw from NPS tier I account sooner than the age of 60 for specified functions. According to Budget 2017, the volume withdrawn as much as 25 p.c of your contribution is exempt from tax. You must be invested for a minimal of 10 years within the scheme.

1516939202 837 tax benefits of nps investment - Tax Benefits of NPS Investment

Also, notice that when the withdrawal the corpus invested might not be effected taxation-wise.

  • Tax regulations on retirement receive advantages: After you reach the age of 60, as much as 40 p.c of the corpus (marketplace price) withdrawn in a lump sum is exempt from tax. Now you’ll stay invested until 65 additionally.
  • You can withdraw an extra 20 p.c after achieving the age of 60 years (Or 65), however that quantity can be taxable in line with your source of revenue slab.
  • Minimum 40 p.c of the NPS adulthood corpus (after achieving the age of 60 years) must be mandatorily invested in an annuity, which is totally exempt from tax.
  • Also, cost made in opposition to the acquisition of annuity does now not draw in GST. This is financial savings of8% of the corpus.
  • The annual source of revenue you obtain from an annuity can be added in your general source of revenue and can be taxable as consistent with your source of revenue slab.

Recently the Chairman of PFRDA Mr. Hemant Contractor additionally mentioned: “NPS Taxation is not fair but can be managed”. This must now not prevent buyers taking receive advantages of a low price, market-linked retirement product. Remember we’ve got an enormous running inhabitants. Government international over are lowering social safety bills or expanding contributions (eg Obama Care). NPS in India can assist many have self-sustained retirement existence.

Share your perspectives with tax saving NPS. You may additionally write me when you’ve got a selected query in this.

Share this newsletter along with your friends and family to assist them be told new issues.



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Tax Benefits of NPS Investment


Investor were misled on to be had advantages & tax saving NPS. The tax receive advantages and value makes NPS a just right retirement product for personal sector staff.


Madhupam Krishna

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