Tax saving is very crucial to increase an individual disposal income. NPS is one among those a tax-saving investments that also contribute to wealth growth and secure retirement planning, the National Pension Scheme (NPS) stands out as a top choice for many individuals. Here are 7 tax benefits that you can avail under NPS.
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Tax Saving Benefits Of NPS
Employee Tax Benefits for Self-Contribution
Under Section 80CCD(1), employees contributing to NPS can avail a tax deduction of up to 10 per cent of their pay (Basic + DA), capped at Rs.1.5 lakh (Section 80CCE).
An additional deduction of up to Rs.50,000 is available under Section 80CCD(1B), enhancing the overall limit to Rs.1.5 lakh (Section 80CCE).
Employee Tax Benefits on Employer Contributions
Employer contributions to an employee’s NPS are eligible for a tax deduction of up to 10 per cent of the salary (Basic + DA) under Section 80CCD(2) or 14 per cent if contributed by the Central Government. This is beyond the Rs.1.5 lakh limit of Section 80CCE.
Tax Benefits for Self-Employed Individuals
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Self-employed contributors to NPS can enjoy a tax deduction of up to 20% of gross income under Section 80CCD(1), with the total limit set at Rs.1.5 lakh (Section 80CCE).
An additional deduction of up to Rs.50,000 is available under Section 80CCD(1B), complementing the overall limit of Rs.1.5 lakh (Section 80CCE).
Tax Benefits on Partial Withdrawal
Partial withdrawals from NPS receive tax exemption when the withdrawn amount is up to 25% of self-contribution, subject to prescribed criteria by PFRDA under Section 10(12B).
Tax Benefit on Annuity Purchase
Tax exemption is granted on annuity purchases or superannuation at 60 years under Section 80CCD(5). However, subsequent annuity income is taxed under Section 80CCD(3).
Tax Advantages on Lump Sum Withdrawal
Section 10 provides tax exemption on a lump sum withdrawal of 60% of accrued NPS funds upon reaching 60 years or superannuation.
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Employer Tax Benefits
Employers enjoy a tax deduction on contributions to employees’ NPS accounts, up to 10% of the employee’s salary (Basic + DA), treated as a ‘Business Cost’ under section 36(1)(iv)(a) from the Profit & Loss Account.
