What are the Tax Benefits on NPS

What are the Tax Benefits on NPS

What is NPS?

The NPS (New Pension Scheme) came into operation with effect from 1 January 2004 and was made applicable to all new employees to Central Government service, except to Armed Forces, joining Government service on or after 1 January 2004.NPS is being regulated and monitored by PFRDA (Pension Fund Regulatory and Development Authority). In NPS you can regularly invest your money in this and get a lump sum at your retirement and a fixed monthly income for the lifetime. It will work almost the same way as Private Pension Schemes. Minimum limit is Rs. 6,000 per year (Rs. 500 per month). However there is no upper limit on the maximum contribution per year.

Who can not invest/subscribe in NPS?

Insolvent person
Individual of unsound mind
Pre-existing account holders under NPS
Person under 18 years of age (Minor)

NPS Tax Benefits

National Pension System is another tool in hand for planning your tax obligation. Taxes are important for the nation's development, but highly impact individual's budget. Government has understood the individual's requirements, and hence allowed various tax benefits under the present Financial Budget, so you may start saving today under NPS to attain independence on retirement.

Deductions under Section 80CCD(1)

An individual may claim the tax benefit under section 80CCD(1) upto 10% of the Basic Salary + Daily Allowance with a maximum cap upto Rs 1,50,000/-.

Deductions under Section 80CCD(1B)

Government further allowed from Financial Year 2015-16 additional Rs 50,000/- deductions for the investments made by the individual in the National Pension System.

Deductions under Section 80CCD(2)

Income Tax Act has also included private employer's contribution in NPS on behalf of employees under the ambit of Section 80CCD(2). All citizens may claim additional benefit of tax deduction upto 10% of Basic Salary + Daily Allowances, if the contribution is made by the employers.

As NPS is completely market driven, there is no guaranteed/defined return in this pension scheme. Returns get accumulated throughout its tenure and get paid as annuity or lump sum benefit on maturity.

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