What are the tax benefits under NPS?

Any individual who is a subscriber of NPS can claim income tax deduction up to 10% of his/her gross income under Sec 80 CCD (1) within the overall ceiling of Rs. 1.5 lac under Sec 80 CCE. In addition to ₹ 1.5 lakh allowed under Section 80C investment of up to ₹ 50,000 by an individual in the National Pension Scheme (NPS) for the contribution made over and above ₹ 1.5 lakh, whether salaried or self-employed, qualifies for additional tax deduction under Section 80CCD (1B) of the Income Tax Act.  However, salaried individuals can claim the maximum deduction under Section 80CCD (1) is 10% of his/her salary for that financial year, and for non-salaried individuals, it is 20% of his/her gross total income for that year.

As per the present rules, any Indian citizen between 18 and 60 years can join NPS. A private employee can deposit the contribution directly or she can route the contribution through the employer she is working with to get a tax rebate. The Tier 1 account is non-withdrawable until the subscriber reaches the age of 60. However, partial withdrawal before that is allowed in specific cases. The Tier 2 account is a voluntary savings account and subscribers can withdraw their money from it whenever they want. However, a Tier 1 account is necessary in order to open a Tier 2 account.

The investments in NPS falls under the category of exempt, exempt, tax (EET) mode of taxation. The investor can get back 40% of the corpus amount tax-free on attaining the age of retirement or 60 years. The scheme allows partial withdrawal of up to 25% of one’s own contribution in the NPS under specific situations like children’s higher education or marriage, construction or purchase of the first house, and medical treatment can be withdrawn and this is tax-free. The amount withdrawn for the above purpose is tax-free. An individual may opt for an exit option before the age of 60 years but in such a case, the subscriber must invest 80% of the corpus to buy an annuity. The remaining 20% of the corpus withdrawn is taxed according to the subscriber’s income-tax slab.

Corporate Subscribers:

Tax Benefit is available to Corporate Subscribers to NPS under section 80CCD (2) of the Income Tax Act. Employer’s NPS contribution (for the benefit of the employee) up to 10% of salary (Basic + DA), as business expenses,

Source: Income tax department

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