National Pension Scheme Tax Benefits | How to use NPS scheme to Save Tax - YouTube

NPS has become a preferred product for retirement savings within a period of 10 years after it was opened to the public.

One of the biggest reasons for it to become popular is the tax benefits it offers.

However, there is a lot of confusion about how much and how to invest in this to get tax benefits.

In this video we will give an insight into the tax benefits of NPS in just 4 points.

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Before we get into the details of tax benefits, let us give you a quick overview of NPS.

NPS is a voluntary retirement scheme.

You can invest in this scheme to create a retirement fund.

Apart from this, you can also arrange a monthly pension for yourself.

the age group of 18 to 65 years can join this scheme.

As NPS is a retirement plan, you can withdraw the amount invested in this only after you

attain the age of 60 years.

However, partial withdrawals are allowed for certain special needs like children’s education.

NPS tax benefits can be availed only if you invest in a Tier 1 account.

Thus, you should keep this in mind while investing.

Now let’s talk about the tax benefits of NPS

Number 1 – Tax benefit under Section 80C –

NPS is listed under Section 80C.

Hence, you can invest upto Rs 1.5 lakh in the NPS and claim deduction under Section 80C.

Number 2 – Tax benefit under Section 80CCD (1B): There is also an additional tax saving

provision for NPS subscribers.

Subscribers can invest an additional Rs.50,000 and claim tax benefit under Section 80CCD (1B).

This Rs. 50,000 deduction is over and above the limit of Rs.1.5 lakh of Section 80C.

So, you can invest a total of Rs. 2 lakh in NPS, which means Rs.1.5 lakhs under Section

80c and Rs. 50,000 Section 80ccd (1b) and claim Tax deduction.

It means that you can save Rs. 62,400 if you fall under the 30% tax bracket.

Number 3 – Tax Benefit under Section 80CCD (2) -: This section covers the contribution made by employer.

Hence, self-employed individuals would not be able to claim tax deduction under this section.

Employees can claim tax deduction under Section 80CCD (2) on the contribution made by their Employers.

However, in case of Government employees, this deduction cannot exceed 14% of their

salary amount and for all other employees, it cannot exceed 10% of their salary.

Let us understand these benefits with an example: Let us assume that an employee from the corporate

sector has a basic salary of Rs. 6 lakhs per annum and dearness allowance (DA) of Rs. 3 lakhs.

In this case, on the employer contribution, he/she can claim a deduction of Rs. 90,000 (10% of Basic+D.A.).

Now to this, if we add the deduction of Rs.2 lakhs under Section 80C and 80CCD (1B),

then he/she can claim a total deduction of Rs. 2.9 lakhs.

Number 4 – Tax Benefits on Returns and Maturity Amount – A taxpayer is not liable to pay

any tax either on the returns or the final corpus amount obtained upon the maturity of NPS.

As you can see, NPS allows you to save tax on the invested amount, maturity amount and

the returns as well.

This tax treatment is known as EEE i.e. Exempt-Exempt-Exempt.

In India, you can find this kind of tax exemption benefit on very few financial products.

And this brings us to the end of our video.

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