Everything About National Pension Scheme Tax Rebate

Investing in the NPS offers tax benefits under sections 80 CCD (1), 80CCD (2) and 80CCD(1B). Under section 80 CCD (1), investments up to Rs. 1.5 lakhs in a financial year are eligible for tax deduction. Note that this deduction is the maximum ceiling under section 80C.So, if you haven’t invested in any other instrument outlined under this section, such as Public Provident Fund, tax-saving bank fixed deposit , national savings certificate, etc., you can claim deduction on investments up to Rs. 1.5 lakhs in the Link NPS .In the Union Budget 2016, the Government introduced an additional deduction on investment up to Rs. 50,000 in the NPS. This is up and above Rs. 1.5 lakh under section 80 CCD (1). This additional deduction under 80 CCD (1B) means you can claim a total exemption of Rs. 2 lakhs on investments made in the NPS.NPS tax rebate also extends to the employer’s contribution, and this is under section 80 CCD (2). Under this section, your employer’s contribution up to 10% of your basic salary and dearness allowance also qualifies for tax exemption.This is up and above the ceiling limit of Rs. 1.5 lakh under section 80C and Rs. 50,000 under section 80 CCD (1B).  Also, note that under this section, there’s no upper limit on tax deduction available. In other words, the higher the contribution from your employer, greater is the tax benefit available.

Upon turning 60, you can withdraw from your NPS account. Note that while 60% of the corpus can be withdrawn tax-free, 40% has to be mandatorily invested in buying annuity, which offers income in the form of pension. This is clubbed to your annual income and taxed accordingly.

NPS has undergone a lot of change since its introduction, and, over the years, has evolved as a prudent avenue for building a retirement corpus. However, keep in mind that tax rebate is available only on investments made in the NPS tier 1 account, which is the pension account.Contributions made in NPS tier 2 account, an optional savings account, don’t qualify for tax exemption. Also, you can open a tier 2 account only if you have a tier 1 account.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.