Tax exemption is available on investment in NPS under Section 80CCD of Income Tax. This also has two sub-sections – 80CCD(1) and 80CCD(2). Apart from this, there is another sub-section of 80CCD(1) 80CCD(1B).
National Pension System: You will know all the features of National Pension System. You must also know that income tax exemption is available in this. There is tax benefit up to Rs 50,000. But, do you know that there is no profitable deal in taking NPS yourself. Why after all? And if you don’t take it yourself, what should you do? Actually, if you take NPS through your employer, you will get more benefits. There will even be benefit in tax exemption. Let us understand how…
Tax saving planning always happens at the beginning of the financial year. No matter how high the salary is and how much investment, the tax liability does not reduce. But, there is an option from which you can get a lot of benefit. Some additional tax exemption is available on contribution to NPS through the employer. How will you get additional tax exemption by investing in NPS through employer?
Additional discount available in 80CCD
Tax exemption is available on investment in NPS under Section 80CCD of Income Tax. This also has two sub-sections – 80CCD(1) and 80CCD(2). Apart from this, there is another sub-section of 80CCD(1) 80CCD(1B). You can get tax exemption of Rs 1.5 lakh under 80CCD(1) and Rs 50 thousand under 80CCD(1B). At the same time, now apart from this exemption of Rs 2 lakh under 80CCD(2), you can also avail further exemption in income tax.
How to avail the benefit of higher discount?
You get tax exemption on investment in your NPS from the employer. Under this, you can invest up to 10 percent of your basic salary and dearness allowance in NPS and you will get tax exemption on it. At the same time, if you are a government employee then this figure can be up to 14 percent for you. Most companies provide NPS facility. You can invest in NPS through the company’s HR. The good thing will be that you will be able to get additional tax exemption.
How to calculate tax?
Let us see an example of taxable income at a salary bracket of Rs 10 lakh. First of all, remove the deduction of Rs 1.5 lakh under 80C and Rs 50 thousand under 80CCD(1B) from the total salary. Then there is a standard deduction of Rs 50 thousand. Now taxable salary will be Rs 7.50 lakh. If you make reimbursement a part of your salary bracket, then you can save tax up to Rs 2.50 lakh through reimbursements like uniform allowance, broadband allowance, conveyance allowance, entertainment. After claiming reimbursement, the taxable salary will be Rs 5 lakh.
How can tax be zero?
Now under 80CCD(2), if you get your employer to invest in NPS, then up to Rs 50 thousand can be invested. In this way your taxable income will be less than Rs 5 lakh and you will get the benefit of rebate under 87A. Meaning there will be no tax on your total earnings. One thing to be noted here is that you can avail maximum exemption by investing in 80CCD(2) through your employer. There is no limit on investment in this. However, this will be decided by your basic salary.
