Investment up to Rs 50,000 is eligible for additional deduction under Section 80CCD (1B) of Income Tax. Means those coming in 30% tax slab can save tax of Rs 15,600.
New Delhi. National Pension System (NPS) account not only helps in saving money for pension, but also works as a great way to save tax for salaried employees. Under Section 80CCD (1B) of the Income Tax Act, a special tax benefit is available to NPS subscribers. As per the provision of this section, investment up to Rs.50,000 is eligible for additional deduction. This limit is different from the limit of Rs 1.5 lakh under section 80C. Also, this limit is only for contribution to Tier-I NPS account.
According to Jesus Sehgal, Tax Market Head, AKM Global, a tax and consulting firm, “Subscribing to NPS offers several tax benefits. Any NPS subscriber can claim tax benefits under section 80CCE of the Income Tax Act up to an upper limit of Rs 1.5 lakh. Additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available under sub-section 80CCD of the Act. This is exclusively available for NPS subscribers. This is in addition to the deduction of Rs 1.5 lakh available under section 80C of the Act.
Those in the 30 per cent tax bracket can save up to Rs 15,600 more
According to Dr Suresh Surana, founder, RSM India, a taxpayer in the 30 per cent tax bracket can save up to Rs 15,600 by investing Rs 50,000 in NPS. That too, if he has already exhausted the limit of Rs 1.5 lakh under section 80C.
How NPS Works Tax Saving
Employee Contribution: Employee’s own contribution is eligible for tax exemption up to 10% of salary (Basic Salary + DA) under Section 80CCD(1) of the IT Act. Such deduction comes under the limit of 1.50 lakhs under section 80C of the Income Tax Act.
On employer’s contribution: Contribution made by the employer for the benefit of the employee is treated differently. On this, 10% tax is deducted by the first employer. Later, the employee can claim a deduction of 10 per cent. If there are employees of the central and state government, then they can claim a deduction of up to 14 percent. Such deduction will exceed the limit of 1.50 lakhs under section 80C.
Voluntary Contribution: Employees can voluntarily invest an additional amount of Rs.50,000 or more in NPS Tier I account, and claim tax deduction under section 80CCD(1B), subject to a maximum of Rs.50,000 subject to the limit.
Dr. Surana says that employees can take advantage of this and revise their potential tax under NPS contribution by re-examining the components of their CTC, so that they can get more benefit.
How to invest in NPS
You can contact any POP-SP for complete information on this subject. Alternatively, you can visit the website of eNPS and understand the information provided on the website.
