Extra tax deduction by investing Rs 50,000 under NPS

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NPS tax benefit

Apart from saving for retirement, NPS (National Pension Scheme) provides additional tax deduction of Rs. 50,000 under 80CCD(1b) which is over and above the benefit of Rs. 1.5 Lakhs under section 80C. So now you can claim up to Rs. 2 Lakhs under 80C + 80CCD. Deduction under section 80CCD(1b) is only available to individuals and not to Hindu Undivided Family (HUF).

NPS tax saving option

If you fall in the highest tax bracket of 30%, this will mean tax saving of additional Rs 15,450, which is significant. If you fall in 20% tax bracket – you can save around Rs. 12,000.

Once your section 80C limit of Rs 1,50,000 is exhausted, make use of NPS to additionally save tax by investing Rs 50,000 in NPS.

Also read: Simple steps to open NPS account online using e-NPS.

Kindly note that only NPS Tier 1 account offers tax deduction not the Tier 2 scheme.

Tier I account is a mandatory pension scheme. One can withdraw the amount only after the subscriber attains the age 60.

Tier II is an optional account, can be opened only with Tier I or after your Tier I account opened. In Tier II, subscribers can withdraw the money anytime.

Also read: Simple steps to open NPS account for NRIs in India

Even though contribution to NPS up to Rs 1.5 Lakhs and the interest are not taxable, amount received as pension or withdrawal amount would be treated as income in the hands of recipient and that will be as taxed as per recipient income tax slap.

BUT,

if tax payer use that NPS corpus for purchasing an annuity plan in the same year, tax payer will not have to pay any tax for the annuity investment.


An annuity is pension corpus, which provides a certain amount of money on monthly, quarterly and annual basis. Pension amount received on that particular year will be taxable as per the tax slap of the recipient.


 

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