Is NPS A Good Option For Claiming Tax Benefits?2 min read
With the deadline to file taxes fast approaching, you might have several queries regarding tax-saving investments and how to file them.
The National Pension System (NPS) which helps individuals build a retirement corpus, is one such tax-saving investment . The government-sponsored scheme falls under the purview of the Pension Fund Regulatory and Development Authority (PFRDA).
Your investment in the scheme is eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act 1961. You can also claim an additional tax deduction of up to Rs 50,000 under Section 80 CCD(1B).
This means that investing in NPS could potentially give you a total tax benefit of up to Rs 2 lakh.
Salaried individuals can claim a maximum deduction of up to 10% of salary for the year, under the under Section 80CCD (1). For non-salaried/self-employed individuals, the exemption limit is 20% of the income for the year.
NPS accounts come in two types – Tier 1 and Tier 2. Do note that tax exemptions are available only under the Tier 1 accounts, and not the Tier 2 accounts.
The Tier 1 account is mandatory, while the Tier 11 account is a voluntary savings account. With a Tier 1 account, you can withdraw up to 60% of the accumulated corpus upon retirement, but there is no such lock-in period in a Tier 2 account.
To maintain a Tier 1 account, you need to make a minimum contribution of Rs 1,000 annually, while there is no such restriction for a Tier 2 account.
If you’d like to know more about the NPS, you can read our in-depth explanation of the features of the NPS.
So, keep these points in mind when filing your taxes. We’ve also given some pointers on how to file income tax returns.
Disclaimer: Paytm Money Ltd SEBI Reg No. INA100009859/ NPS ePOP: 269042019. Regd. Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. The NPS offering is non Exchange traded products and Paytm Money Ltd (PML) is acting as an agent for distributing the same. Please note all disputes with respect to the distribution activity, would not have access to the Exchange investor redressal forum or Arbitration mechanism. This content is purely for informational purpose and in no way an advice or recommendation.
