There are only two things that can scare an independent salaried employee – BOSS and Tax, and the later is likely to stick around. New schemes are being launched frequently which will help you save your taxes. This blog will help you understand the benefits of National Pension Scheme (NPS) and various ways in which you can reduce your tax burdens.
National Pension Scheme (NPS), is a program with several investment options, launched by the Indian Government, which has been in the limelight due to its attractive schemes. It is an excellent opportunity to invest regularly in your pension account (PRAN) and enjoy the rewards. Earlier, NPS was started as a pension scheme for only Government employees, which was stretched to all Indian citizens (age 18 to 60) by PFRDA. It is beneficial for private sector employees and also for those who want to enjoy getting a regular pension after retirement.
You can open – Tier 1 and Tier 2 account respectively. Tier 1 account is your pension account, which cannot be withdrawn until you are 60, whereas Tier 2 account allows you to withdraw at your will.
The Income Tax Department(ITD) provides various sections for pension plans where accordingly, deductions take place. NPS deductions come under the following sections:
Another part (1B) was included under this section to provide an additional deduction of Rs. 50,000 for the voluntary contribution made by an assessee under NPS
|Person||Tax Benefits||Tax Treatment|
|Employee||· U/S 80CCD (1) of Income Tax Act, 1961 Investment up to 10% of salary (Basic + D.A.) is deducted from taxable income which limits up to 1.5 lakhs.|
· U/S 80CCD (1B) of Income Tax Act, additional Rs. 50, 000 is deductible from taxable income.
|· The exempted amount is restricted up to 40% of the Corpus withdrawn in lump sum.|
· The amount invested in annuity is completely exempt from tax.
|Employer||· U/S 80CCD (2) of Income Tax Act, 1961 Investment up to 10% of salary (Basic + D.A.) is deducted from taxable income.|
There is no limit for absolute value.
|· Tax is applicable on the pension received out of investment in Annuity which is treated as income.|
By investing in NPS, you not only can avail of tax benefits but the following other benefits as well.
For all your tax saving and planning needs including investing in NPS enlist the aid of your tax expert at H&R Block India.