Tax Benefits for investing in NPS
One of the biggest challenges of the working population in India, is to maintain a means of monthly income post their retirement due to cessation of salary from employer or income from employment. Individual working in the un-organised sector are more vulnerable of securing retirement income as compared to government servants. It is therefore essential for individuals to take an early step towards retirement planning, and National Pension System (NPS) offers dual benefits of tax saving and retirement planning at the lowest cost.
NPS
contributions are eligible for tax deduction u/s 80 CCD(1) of ITax Act (upto
10% of Salary (Basic + DA) or 20% of Gross Income for others) within the overall
limit of Rs 1.50 Lacs
Subscriber is allowed an additional tax deduction for
contribution made to NPS u/s 80CCD 1(B) of ITax Act
subject to a maximum of Rs. 50,000/-.
This deduction is over and above the Rs. 1.5 lac limit
prescribed u/s 80CCE of ITax Act and thus, the overall deduction could be Rs. 2
lacs if you contribute in NPS
NPS
contributions made by employer (upto 10% of the salary) is allowed as a
deductible perquisite for employees, subject to a ceiling of Rs. 7.5 lakh (u/s
80CCD(2) read with 17(vii) of ITax Act).
Employer
can claim the NPS contributions made to their employees’ NPS accounts (upto 10%
of the salary) as an exempted business expense u/s 36(1)(iva) of ITax Act
At
maturity, the lumpsum amount received by subscriber (maximum 60% of corpus) is
an exempted income u/s 12A of ITax Act and the balance amount paid for
purchasing annuity (minimum 40% of corpus) is also an exempted income u/s
80CCD(5) of ITax Act. These exemptions are irrespective of the amount involved
i.e without monitory ceiling.
Goods
and Service Tax (currently 1.8%) otherwise payable while purchasing an annuity
product/scheme, is not levied when annuity plan is purchase through NPS.
The
amount withdrawn from NPS for emergency purposes (Partial Withdrawals) are
tax-exempt u/s 12B of ITax Act.
NPS is
an Exempt, Exempt, Exempt (EEE) product, meaning subscriber gets tax exemption
at the time of investment, accumulation and withdrawal (maturity).
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