Salaried Taxpayers have a limited number of options to save Tax under the Income Tax and NPS is one of them.
CA Pratibha Goyal | Jul 3, 2024 |
NPS Tax Deduction available under New and Old Income Tax Regime: Know More
Salaried Taxpayers have a limited number of options to save Tax under the Income Tax Act. Investing in the National Pension Scheme (NPS) is one of them. The good thing about this is that it provides Tax Saving and investment options for both Salaried and Non-Salaried (Self-Employed) Taxpayers. Further, the NPS Deduction is available under the old as well as the New Income Tax Regime as well.
Section 80CCD(1), 80CCD(1B), and 80CCD(2) under the Income Tax Act provide for Income Tax Deduction for NPS. Let’s have a look at the relevant provisions and available Tax benefits.
Section 80CCD(1)
This section provides for Deduction with respect to contributions to the pension scheme of the Central Government. This Deduction is available to Government, Non-Government Employees or Self-employed Taxpayer.
Allowed Deduction:
(a) in the case of an employee, 10% of his salary (Basic + Dearness Allowance (DA)) in the previous year; and
(b) in any other case, 20% of his gross total income (GTI) in the previous year.
Please note that this deduction has a ceiling of Rs. 1,50,000. Please note that as per Income Tax, the aggregate amount of deductions under section 80C, section 80CCC and section 80CCD should not exceed Rs 1.5 lakh.
80CCD(1B)
This Section provides an additional deduction of Rs. 50,000 over and above Rs. 1,50,000 to both Salaried and Non-Salaried (Self-Employed) Taxpayers.
80CCD(2)
This Section provides for the deduction of NPS Share contributed by the Employer of the Taxpayer.
Allowed Deduction:
(a) 14% of Salary (Basic + DA), where such contribution is made by the Central Government or the State Government;
(b) 10% of Salary (Basic + DA), where such contribution is made by any other employer,
Please note that this deduction has a ceiling of Rs. 7,50,000. This limit includes contributions towards EPF and super annulation fund also.
The deduction under sections 80CCD(1), 80CCD(1B), and 80CCD(2) under the Income Tax Act are allowed under the Old Tax Regime. Deduction under section 80CCD(2) is allowed in the new tax regime as well.
| National Pension Scheme (NPS) | |||
| Particulars | 80CCD(1) | 80CCD(1B) | 80CCD(2) |
| Allowed Deduction | Employee: 10% of salary (Basic + DA) Other: 20% of GTI | Additional Deduction to both Salaried and Self-Employed Taxpayer | Deduction of NPS Share contributed by Employer of Taxpayer: Govt. Employee: 14% of salary (Basic + DA) Other: 10% of salary (Basic + DA) |
| Ceiling | Rs. 1,50,000 | Rs. 50,000 | Rs. 7,50,000 |
| Tax Regime | Allowed in Old Tax Regime | Allowed in Old Tax Regime | Allowed in both New and Old Tax Regime |
Taxation of NPS at Maturity
It requires the mandatory purchase of an annuity worth a minimum of 40% of the accumulated NPS Corpus. Pension is paid from this which is Taxable.
The remaining 60% is Tax-Free.
In case of any Doubt regarding Membership you can mail us at [email protected]
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