All You Need To Know About Tax Benefit Under NPS

As per the Income Tax Act of 1961 , all individuals below the age of sixty, who have net taxable Income below 5 lakhs annually, are liable to pay income tax. The income tax department offers several provisions that help you claim deductions, thereby reducing the overall taxes you pay. For instance, individuals can avail deductions up to Rs. 1.5 lakhs under Section 80C.

The Link National Pension Scheme is a government-backed annuity instrument that is open to all Indian citizens. The NPS has two tiers:

• Tier 1 – Contributions to Tier-I are non-withdrawable until the age of sixty.
• Tier 2 – It's a voluntary savings account where you can withdraw as and when required.

Note that, to open a Tier 2 account, you first need an operational Tier 1 account.However, most individuals exhaust the Rs.1.5 lakh tax-saving benefit available under Section 80C . Additionally one can claim Tax benefit of Rs. 50,000 by investing in NPS. In this guide, we explain how to claim this tax benefit on top of the deductions, that Section 80C offers.

The Finance Act of 2015 introduced in the Union Budget of 2015 introduces a new sub-section under Section 80CCD of the ITA. The new sub-section (1B) provides individuals with an additional deduction of Rs. 50,000. Note that this additional deduction is over and above the Rs. 1.5 lakh limit set under Section 80C.Earlier individuals could claim a total deduction of up to Rs. 1.5 lakhs under Sections 80C + Section 80CCC + Section 80CCD (1) by investing in various schemes like ELSS , Tax-saving mutual funds , Tax-saving fixed deposits , PPF , EPF , NSC , NPS, and ULIPs .Now, with the Finance Act of 2015, individuals can invest an additional Rs. Fifty thousand in the NPS and deduct this amount from their taxable income. Sections 80C + Section 80CCC + Section 80CCD (1) = Maximum of Rs. 1.5 lakh Section 80CCD(1B) = Maximum of Rs. 50,000 deduction

• Contributions made to the Tier-1 NPS accounts are eligible for this additional deduction and not contributions made to the Tier-2 NPS account.
• The deductions are available to both salaried employees and self-employed individuals.
• For salaried employees, the maximum deduction under Section 80CCD (1) is fixed at 10% of his/her annual salary.
• For self-employed individuals, the maximum deduction under this section is fixed at 20% of his/her gross annual income.
• The maximum deduction permitted under this sub-section is Rs. 50,000 for a year.

Apart from helping you build your retirement corpus, NPS offers incredible tax-savings. Besides the 1.5 lakhs you can avail as deductions under Section 80C, NPS contributions offer you an additional tax-saving benefit up to Rs. 50,000. So, build your wealth while enjoying tax-savings with NPS.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.