Tax saving benefits of NPS: These tax benefits are available to the individuals contributing to NPS
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NPS
The Government of India established the National Pension System (NPS) as a retirement benefit scheme to enable all participants to receive a monthly income after retirement. NPS is governed by the Pension Fund Regulatory and Development Authority, or PFRDA.
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Tax benefit to employee
(a) Employee’s own contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1 lac under Sec 80 CCE.
b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs. 1 lac provided under Sec 80 CCE.
b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs. 1 lac provided under Sec 80 CCE.
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Tax benefit for self-employed
Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1 lac under Sec 80 CCE.
According to the HDFC Bank, “You may invest upto 20% of your gross annual income and claim tax exemption on the invested amount under section 80CCD(1). This tax exemption is subject to a limit of Rs. 1,50,000 under section 80C of Income Tax Act, 1961.”
According to the HDFC Bank, “You may invest upto 20% of your gross annual income and claim tax exemption on the invested amount under section 80CCD(1). This tax exemption is subject to a limit of Rs. 1,50,000 under section 80C of Income Tax Act, 1961.”
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Tax benefits under NPS apart from available u/s 80CCD
Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS.
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Tax benefits on partial withdrawal
Subscriber can partially withdraw from NPS Tier I account for specified purposes. Amount received from partial withdrawal are tax exempt u/s 10 (12B) of Income Tax Act.
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Tax benefit on Annuity purchase
Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
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Tax benefit on lump sum withdrawal
Upto 60% of the total corpus withdrawn in lump sum is exempt from tax.
For example: If total corpus at exit is 10 lakhs, then 60% of the total corpus i.e. 6 lakhs, you can withdraw without paying any tax. So, if you use 60% of NPS corpus for lump sum withdrawal and remaining 40% for annuity purchase, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax as per the applicable tax slab
For example: If total corpus at exit is 10 lakhs, then 60% of the total corpus i.e. 6 lakhs, you can withdraw without paying any tax. So, if you use 60% of NPS corpus for lump sum withdrawal and remaining 40% for annuity purchase, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax as per the applicable tax slab
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What will be the investment proof to avail the tax benefit under NPS?
According to the Protean website, “The Subscriber can submit the Transaction Statement as an investment proof. Alternatively, Subscriber from "All Citizens of India" can also download the receipt of voluntary contribution made in Tier I account for the required financial year from NPS account log-in. It can be downloaded from the sub menu "Statement of Voluntary Contribution under National Pension System (NPS)" available under main menu "View" in NPS account log-in.”