Income tax exemption: The last date for investing to save income tax (Tax Saving Planning) is 31st March, which is fast approaching. If you want to save tax this year, then you will have to invest by 31st March, because the benefit of tax exemption on investments made after that will be available to you next year. If your salary is high and you have made all the investments under 80C.. 80D.. Section 10 13A.., then also you may have to pay a lot of tax. In such a situation, you can get additional exemption on top of all other deductions by taking contribution to NPS through the employer. Let us know how you will get additional tax exemption by investing in NPS through the employer.
Most people get this tax exemption in NPS
The tax exemption that any employee gets on NPS is available under 80CCD. It also has two sub-sections – 80CCD(1) and 80CCD(2). There is another sub-section of 80CCD(1) i.e. 80CCD(1B). Under this, you get a deduction of Rs. 1.5 lakh under 80CCD(1) and Rs. 50,000 under 80CCD(1B), but 80CCD(2) will give you a deduction of income tax above this Rs. 2 lakh.
How will you get additional deduction under 80CCD(2)?
Under this, you will get a deduction on the investment made by the employer in your NPS. Many businesses get tax exemption by showing this investment as business expense in their profit and loss statement. Under this, you can invest up to 10% of your basic salary and dearness allowance in NPS and you will get tax exemption on it. If you are a government employee, then this figure can be up to 14% for you.
What will you have to do to get this exemption?
Most companies provide the facility of NPS. You can talk to your company’s HR and get it invested in NPS. This investment is made from your basic salary and the result will be that your in-hand salary will be reduced every month. The good thing will be that you will be able to get additional tax exemption. If your company does not have the facility of NPS, then talk to HR once, they will guide you on this.
Let’s understand the benefit with an example
Suppose your salary is Rs 10 lakh. Under the old income tax regime, you took the benefit of Rs 1.5 lakh of 80C and Rs 50 thousand of 80CCD (1B) i.e. NPS, even after which your taxable income will remain Rs 8 lakh. Most companies provide the facility of saving tax up to Rs 2 lakh by combining conveyance allowance, internet, food coupons and all other reimbursements. Even if you claim all these up to the maximum limit, your taxable salary will remain Rs 6 lakh.
Understand the calculation on the remaining money
On this remaining one lakh rupees, you can get a standard deduction of Rs 50,000, for which there is no need to show any investment. This standard deduction is available only to salaried employees. On the other hand, having a salary of Rs 10 lakh means that your basic salary will be around Rs 5 lakh. That is, under 80CCD (2), if you get your employer to invest in NPS, then about 10 percent of the basic salary, that is, up to about Rs 50,000, can be invested. In this way, your taxable income will become Rs 5 lakh and you will also get the benefit of rebate under 87A. That is, no tax will be levied on you.
