- Investment in NPS qualifies for income tax benefits under NPS Section 80CCD (1B) and Section 80CCD (1)
- Under Section 80CCD (2), employer’s contribution towards NPS also qualifies for income tax benefits
The government has made National Pension System or NPS more attractive by announcing new income tax benefits in Budget 2019 for investors in the pension scheme. NPS is a voluntary, defined contribution retirement savings scheme. It is open for both government, private sector employees and the self-employed. Under NPS account structure, there are two sub-accounts – the mandatory Tier 1 account or the pension account, and the Tier II account, an optional account that offers withdrawal flexibility. Withdrawal from Tier I NPS is not allowed till the subscriber reaches the age of 60 or retirement though partial withdrawal and premature exit is allowed in specific cases.
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Income tax benefits on NPS accounts
- Income Tax benefit for NPS under 80CCD (1B): Under this, salaried as well as self-employed NPS subscribers get a deduction for investment up to ₹50,000 in NPS (Tier I account) in a financial year. If you are in the 30% tax bracket, it means a savings of ₹15,600 a year. This is over and above the deduction of ₹1.5 lakh available under Section 80C of Income Tax Act, 1961.
2) Income Tax benefit for NPS under Section 80CCD (1): If you invest in NPS, you can avail a deduction of ₹1.5 lakh under Section 80CCD (1). This benefit is available for both the salaried and the self-employed. But for salaried individuals the maximum deduction allowed under Section 80CCD (1) is 10% of their salary (basic + DA). This limit is 20% of gross income for self-employed.
Source: Livemint
