The National Pension Scheme was launched by the government in 2004 and has been one of the most preferred post-retirement investment options. Initially, it was made only available to the government employees, but the government made this scheme accessible to employees of all sectors since 2009. It is maintained and regulated by the Pension Fund Regulatory and Development Authority. Apart from being beneficial for building a retirement corpus, NPS tax benefits is another reason people why people choose to invest in it.
Let’s dive in to know about NPS tax benefits in India.
Tax deduction benefits are available for the investments made on Tier I accounts only.
The tax benefits are not limited to investment under NPS. You also don’t have to pay any tax on the returns or the maturity amount. These come under EEE (exempt-exempt-exempt) category under Section 80C.
Refer to the table below to get a clearer picture of NPS tax deductions:
|Tax Deductible||Max Limit||Section|
|Mandatory deduction from salary||Rs.1.5 lakh||80CCD (1)|
|Employer’s voluntary contribution towards NPS||Rs.50,000||80CCD1(b)|
Here are a few additional tax deductions that you can enjoy with NPS:
Also read: Tax Implications Of Provident Fund & How To Save Tax
There are basically two types of National Pension Schemes account one can open. A tier I account is the default account, and one can add a Tier II account voluntarily.
You will find a detailed comparison of the two types of accounts in the table given below.
|Attributes||Tier I Account||Tier II Account|
|Tax Benefits||Up to Rs. 2 lakh p.a.||Government employees- Rs. 1.5 lakh p.a. Other employees- none|
|Minimum Contribution (per annum)||Rs. 500||Rs.250|
|Maximum Contribution||No limit||No limit|
|Eligibility||A resident of India or NRI||Tier I members|
|Minimum balance to be maintained||NA||Rs. 2,000|
|Liquidity||Under certain conditions||Any time|
|Charges||Annual maintenance charges(paid by the employer, if you open the account via your employer)||Transaction and activation charges (paid by subscriber)|
NPS has the following features you should have a brief idea about before making your decision:
However, you can claim an additional tax deduction on self-contribution of up to Rs. 50,000 as per provisions of Section 80 CCD(1B)
You can use an online NPS calculator to know the estimated amount you might receive as a pension. You need to enter the following details to calculate your monthly pension – your date of birth, investment tenure (investment up to 65 years, 75 years, etc), contribution amount, total years of contribution, annual increase in contribution, the expectation of return on investment, % invested in an annuity, and rate of the annuity (in %).
An NPS calculation would give you accurate results based on these data.
Also read: What Are Retirement Mutual Funds: Benefits, Tax & Should You Invest?
The benefits and features of NPS and NPS tax benefits are discussed in this article to help you make a better decision regarding investments. There are other schemes available in the market which provide higher returns and are cost-effective. However, your decision depends on your risk profile and your investment goals.
If building a retirement corpus is your goal, NPS can be an ideal option.
Ans. PRAN or Permanent Retirement Account Number is provided to you upon registration of the NPS account. You can use this ID to login into the eNPS-NSDL website.
Ans. There is a diverse range of options available to choose from in NPS. You can also switch from one fund to another and change the fund manager if you are not satisfied with the performance. You can choose from corporate debt, equity, government bonds and alternative investment funds.
Ans. Both residents of India and NRIs can apply for NPS. However, the applicant has to be between 18 to 60 years of age and submit their KYC documents for the registration forms.
Ans. You will need the following documents for NPS withdrawal:
A cancelled cheque
Proof of identity
Ans. If you have any queries related to the National Pension Scheme or are facing any problem regarding the process or withdrawal of NPS, you can reach out on the National Pension helpline number 1800110708.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
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