If you’re keen on finding out how to claim the National Pension Scheme (NPS) tax benefits on your Tier I and Tier II accounts, this article is for you. NPS is a great tax-saving and long-term investment tool. One of the prime advantages of retirement planning through NPS is that you also get to enjoy tax benefits along with saving for your post-retirement years. Let’s take a close look at the NPS tax saving advantages.
NPS is a government-sponsored scheme with the dual benefits of retirement planning and tax saving. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA). The primary objective of the NPS scheme is to aid investors in building a sizeable retirement corpus. Any citizen of India between 18 and 60 years of age can invest in NPS.
There are two types of NPS accounts - Tier I and Tier II. While NPS Tier I is well-suited for retirement planning, Tier II NPS accounts act as a voluntary savings account. Tier I NPS investment is long-term, and the amount cannot be withdrawn until retirement. This is not the case with Tier II NPS accounts.
Now that we have seen the difference between Tier I and Tier II NPS accounts, it's time to explore the different NPS scheme tax benefits.
Under Section 80CCD (1) of the Income-Tax Act, investments in the National Pension System (NPS) offer a tax exemption of up to ₹1.5 lakh. This benefit is available to both salaried and non-salaried individuals. Salaried individuals' maximum deduction is 10% of their salary (basic plus DA) for that year. Non-salaried individuals can claim a deduction of up to 20% of their total gross income.
If a company provides an NPS facility, the employer's contribution to the NPS qualifies for a tax rebate under Section 80CCD (2). This rebate is up to 10% of the employee's salary (basic plus DA), in addition to the personal contribution limits under Section 80CCD (1).
NPS allows for additional tax savings for individuals who have already claimed the ₹1.5 lakh tax exemption under Section 80C. Both salaried and self-employed individuals can claim an extra tax deduction of up to ₹50,000 under Section 80CCD (1B). This benefit is applicable only to Tier I NPS accounts.
With this information about the NPS Income Tax benefit in your kitty, we are sure you will be able to grow your wealth and save on tax at the same time!
Read more on the benefits of the NPS Scheme here.
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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.