Tax Benefits on NPS Contributions
Planning your golden years just got smarter with NPS; the National Pension System (NPS) is India’s trusted retirement solution with tax benefits! It empowers individuals to save for a financially secure future. Being a government-backed and Pension Fund Regulatory and Development Authority-regulated scheme, NPS has many benefits.
The income tax benefit of NPS contribution is its most well-known feature, encouraging tax-saving subscribers to save wisely for retirement. Wondering how to save tax with NPS? Let’s dive into the various income tax benefits of NPS that you can explore as an NPS subscriber.
General tax benefits offered by NPS for individuals making contributions
| Section 80C | Maximum Rs. 1.50 lacs (including other eligible investments under the same section of the Income Tax Act) |
| Section 80CCD(1B) | Rs. 50,000/- (Exclusive for NPS) |
| Sec. 80CCD(2) | Individuals can get exemption benefits for contributions facilitated by employers. |
Note: Currently income tax benefits of NPS under sec 80C and 80CCD(1B) are available in the old tax regime only.
Exclusive Tax Benefits on NPS Contributions by Employer
Corporate NPS is a type of NPS account wherein the employer will facilitate a contribution (up to 10% of the employee’s basic salary and DA) to your corporate NPS account from your salary as instructed by you. Here are some exclusive tax benefits on NPS contributions by employer
– Corporate NPS– Contributions borne by the employer of up to 10% of the employee’s annual basic salary and DA in the old tax regime and up to 14% under the new tax regime towards NPS are eligible for tax deductions section 80 CCD (2) of the Income Tax Act, 1961*
– Government NPS – Government NPS contribution of up to 14% of the employee’s annual basic salary and DA is eligible for tax deductions section 80 CCD (2) of the Income Tax Act, 1961*
Employercontributions to Provident Fund, superannuation funds, and NPS in toto have a maximum income tax benefit upto Rs. 7.5 lacs annually, irrespective of the tax regime..
Tax Benefit on Withdrawal and Exit
An NPS account can have partial withdrawal, premature withdrawal or exit, withdrawal from superannuation, or exit from maturity and annuity investments. Each category has different tax benefit features that you need to know as an NPS subscriber.
- Tax Benefit on Partial Withdrawal – Partial withdrawal to the extent of 25% of the amount of contributions made by the employee to NPS is eligible for tax exemption, subject tofulfilment of the terms and conditions specified under the PFRDA regulations.
- Withdrawals upon Superannuation or Exit on Maturity: 60% of the NPS corpus on attaining the age of retirement or superannuation can be withdrawn tax free as a lump sum. Balance corpus of 40% has to be invested inan annuity for your pension.
- Annuity: The income from annuity that is subsequently received is subject to income tax.
Conclusion
Building savings for your golden years can be rewarding with the income tax benefits of NPS. The government-backed scheme ensures you save for a promising future while also making the most of the tax benefits it offers on contributions. With income tax benefits under Sections 80C, 80CCD(1B), and 80CCD(2), both salaried, self-employed, and corporate NPS can enjoy tax exemptions. NPS offers EEE, i.e., exemptions on contributions, accumulation, and withdrawals. Maximize your savings with the unparalleled benefits of NPS.
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