Deepak Gupta | Jul 22, 2018 |
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Tax Benefits of investing in National Pension Scheme (NPS) :
Indeed there are many tax benefits of investing in NPS but before that lets understand what is the concept of this scheme.
National Pension System (NPS) is a pension cum investment scheme launched by Government of India to provide old age security to Citizens of India. It brings an attractive long term saving avenue to effectively plan your retirement through safe and regulated market-based return. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA).National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS.
One of the benefit of this scheme is that, it helps is planning retirement of private /unorganised sector employees :
Government employees are given pension as per provisions made by the Government. But no such provision is there for Employees having private sector jobs. NPS helps employees of private/ unorganized sector toplan for their retirement by investing in this scheme. These employees can take benefit of Section 80 C deductions of Income Tax, at the same time by making investment in NPS.
Below are the Tax Benefits of investing in National Pension Scheme
First of all, the taxpayer can claim a tax deduction for NPS for up to Rs. 1.5 lakhs for self-contribution and also for the employer contribution.
An employees own contribution is eligible for a tax deduction -up to 10 per cent of the salary (basic plus DA) under Section 80CCD(1) of the Income Tax Act .
Under the provisions of section 80CCD (2) of the Act, further deduction to an employee in respect of contribution made by his employer is allowed up to 10% of salary of the employee.
For the self-employed taxpayer, this limit is 20% of gross income under Section 80CCD(1) of the Income Tax Act.
All these limits are within the overall ceiling of Rs 1.5 lakh allowed under Section 80C and Section 80CCE.
Further additional self contribution (up to Rs. 50,000) can be claimed under section 80CCD(1B). Therefore, the scheme allows a tax deduction of up to Rs. 2 lakh in total.
Tax Treatment on withdrawal from NPS
| A. Upon attainment of the age of 60 years: | Maximum amount that you can withdraw at the retirement is 60% of the accumulated wealth and balance 40% needs to be utilized for the purchase of annuity providing monthly pension to the subscriber. Withdrawal up to 40% of the accumulated wealth in NPS is exempt from tax at the time of retirement and rest of 20% would be taxed at slab rates.
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| B. At any time before attaining the age of 60 years: | For purpose specified for partial withdrawal : Partial withdrawal of upto 25% from NPS istax free suject to below mentioned conditions : The Partial withdrawal shall be allowed for specific purposes such as higher education of children, marriage of children, purchase or construction of residential house or for treatment of specified diseases. Individual should have subscribed to NPS for at least 3 years. Maximum of 3 withdrawals during the entire tenure are allowed. Minimum gap of 5 years is required between the two withdrawals. However, this condition shall not apply in case of withdrawal for treatment of specified illness. Other than the purpose specified for partial withdrawal : If you want to withdraw from NPS before the age of 60 or before retirement , the amount withdrawn will not be taxable but the amount that can be withdrawn is limited to only 20% of the accumulated wealth in NPS Balance 80% of the accumulated pension wealth has to be utilized for purchase of annuity providing for monthly pension of the subscriber. | |
| C. Death of the subscriber: | With effect from the assessment year 2017-18, the whole amount received by the nominee from NPS on death of the assessee shall be exempt from tax. The entire accumulated pension would be paid to the legal heir/nominee of the subscriber. |
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