NPS Investments Tax Benefits

Most taxpayers use the avenues available under Section 80C to save taxes. NPS provides an option to save tax over and above Section 80c.

You can claim tax deductions for your NPS investments of up to Rs 50,000 under Section 80CCD (1B). This is over and above the deduction that you can claim under Section 80C for investing Rs 1.5 lakh. So, you can save up to Rs 15,600 additional tax every year.

However, it is crucial to know that you can claim tax deduction against your NPS investment only for investments done in Tier 1 account

• Tax Benefits under Section 80C

NPS is one of the listed investment options in which you can invest and save tax under Section 80C. The deduction limit for this section is Rs. 1.5 lakhs, and you can invest the entire amount in NPS, if you wish and claim the deduction.

• Tax Benefits under Section 80CCD (1B)

This is an additional tax benefit given only to NPS investors. Under this section, you can claim tax deductions for your investments up to Rs 50,000. This is over and above the deduction that you can claim under Section 80C.

So, you can claim tax deduction up to Rs 2 lakh simply by investing in NPS – Rs 1.5 lakh under Section 80C and another Rs 50,000 under Section 80CCD (1B). That means if you fall under the tax bracket of 30 percent, you can save Rs 62,400 in taxes.

• Tax Benefits under Section 80CCD (2)

This benefit can be availed on the contributions made by the employer, hence, this one is meant for the salaried individual and not self-employed. Government employees can claim 14 percent of their salary tax deduction under this section. Meanwhile, for private sector employees it is capped at 10 percent of their salary.

• Tax benefits on returns of and maturity amount

The tax benefits of NPS don’t just end at the investment amount. As an investor, you don’t have to pay any tax on the returns or the maturity amount also. This kind of tax treatment is called EEE i.e. exempt-exempt-exempt. In India, this tax treatment is available only on a selected few financial products.

Bottom line

One should not just aim for the tax benefits. Therefore, investing in the NPS should be a method to fulfill the retirement needs.

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. PFRDA registration numbers:  POP no -05092018. National Pension Scheme is not exchange traded product / service and ICICI Securities Ltd. is just acting as a corporate agent and all disputes with respect to the corporate agency activity would not have access to Exchange investor redressal or Arbitration mechanism.