National Pension Scheme (NPS) Tax Benefits for Tier 1 and Tier 2| AU Small Finance Bank

NPS or National Pension Scheme is a government-sponsored pension scheme. Launched in January 2004 by the Pension Fund Regulatory and Development Authority of India (PFRDA), this scheme encourages people to invest in a pension account at regular intervals during the course of their employment. On retirement account holders can withdraw a part of the corpus. The individual will receive the remaining amount as a monthly pension post-retirement.

Who can invest to get benefits from NPS Tax Exemption ?

Anyone who wants to plan for their retirement early can invest in NPS. A systematic investment like this can make a massive difference to your life post-retirement period. In fact, salaried individuals who want to make the most of the 80C deductions can also consider this scheme.

Why to Invest in a NPS?

It offers high returns as compared to other traditional tax-savings options. With an interest rate of 9% to 12%, it serves to be the best plan if you want to secure your life after retirement.

What are NPS Tax Saving Benefits?

NPS is one of the financial products you can use to reduce your tax outgo. Let’s look at what it has to offer you.

1. Tax Benefits Under Section 80CCD (1)

Any individual who is a subscriber of NPS can claim tax benefit under Sec 80C within the overall ceiling of Rs. 1.5 lac. You can invest the entire amount in NPS if you wish and claim the deduction. The deduction under Section 80CCD (1) is available to both salaried individuals and non-salaried individuals.

2. Tax Benefits Under Section 80CCD (1B)

Under this section, you can claim tax deductions for your investments up to Rs 50,0000. This is over and above the deduction that you can claim under Section 80CCD (1).

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

3. Tax Benefits Under Section 80CCD (2)

This one is meant for the salaried individual and not self-employed individuals. This benefit can be availed on the contributions made by the employer.

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.

4. Tax Benefits on Returns and Maturity Amount

As an investor, you don’t have to pay any tax on the returns or the maturity amount. This kind of tax treatment is called EEE i.e. exempt-exempt-exempt. In India, this tax treatment is available only on selected financial products.

Types of NPS accounts

NPS provides two kinds of accounts.

Tier I- It is a mandatory account. It is meant to save for retirement and there are restrictions to withdrawal – before and after retirement.

Tax exemption: Up to Rs 2 lakh p.a. (Under 80C and 80CCD)
Minimum NPS contribution: Rs 500 or Rs 500 or Rs 1,000 p.a.
Maximum NPS contribution: Limitless

Tier II- This is a voluntary account. It allows free withdrawals.

Tax exemption: 1.5 lakh for government employees. None - for other employees
Minimum NPS contribution: Rs 250
Maximum NPS contribution: Limitless

Other Benefits

Withdrawal and Exit Rules

You need to mandatorily invest in NPS until 60 years of age. However, you can partially withdraw after 3 years of completion (from the date of opening the account). As a subscriber, you can withdraw 25% of the total contribution, that too under specific circumstances like sponsoring a child’s education, buying a new house, or any other medical emergency reason.

Flexibility

As a subscriber, you can contribute anytime during the financial year. You can also change the amount every year, as per your choice.

Transparency

Since NPS is regulated by Pension Fund Regulatory and Development Authority of India PFRDA, it offers transparency and reliability to subscribers.

How to open NPS account ?

Individuals can register and obtain the subscription for the NPS scheme through the online platform or through the offline process.

To open an NPS account offline or manually, you need to visit PoP – Point of Presence, (it could be a bank too).
To open an NPS account online visit the website enps.nsdl.com.

NPS is a great product to build a corpus for your retirement. It can help you save a lot of money at an early age. So, make sure you make the right investment choice to keep yourself financially secure throughout your life.

Apply Now