Tax Benefits Under NPS One Can Avail of

By: Bank of Baroda
Sat Feb 29, 2020
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National Pension Scheme or NPS is a central government scheme for all those who want to save for their retirement days early on. So if your retirement is still some time to go and you are already planning to make arrangement for your golden days, the NPS is your ticket to achieving these goals. There are several benefits of the NPS scheme as it is a low risk scheme. The tax benefits that come with the NPS make it a great choice of investment. Here are some of the NPS tax benefits:

NPS tax benefit for individuals:

Any person subscribing to the NPS is eligible for a tax deduction of 10 % of his/ her gross income up to Rs1.5lakh under the section 80 CCD (1) of the Income Tax Act. In an exclusive tax saving benefit, you are also eligible for an additional deduction for investment up to Rs50,000 in NPS (Tier I account) under subsection 80CCD (1B). This exclusive benefit is over and above the deduction of up to Rs 1.5 lakh under section 80C. NPS tax benefits for individuals under corporate sector

You are eligible for an additional tax benefit if you have subscribed to NPS scheme under the corporate sector. This deduction is under the section 80CCD (2). Under this the employer’s NPS contribution up to 10% of salary (Basic + DA) is deductible from taxable income, without any monetary limit.

NPS tax benefits for corporates

Corporates making contribution towards employee’s NPS is deducted as business expense from their profit and loss account. So the employer’s contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as NPS tax exemption.

NPS tax benefits on partial withdrawal

National pension scheme tax benefits is that you can partially withdraw funds from your NPS tier-I account .This benefit is available for specified purposes only. The amount withdrawn up to 25% of your contribution is exempt from tax.

NPS tax benefit on annuity purchase

If you invest funds in annuity, it is completely exempt from tax. Only the income from annuity received in the subsequent years is taxable.

NPS tax benefit on lump sum withdrawal

When you are 60 years old, if you withdraw the funds in lumpsum, maximum 60% of the corpus can be withdrawn from which 40% of the corpus is exempted from tax.

One of the biggest selling points for NPS is the additional tax benefits attached to the scheme. If you have a low appetite for risk and want to plan for your retirement days, invest in an NPS now. Click here to invest in an NPS tax saving scheme.

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