"The hardest thing in the world to understand is the
income tax."–Albert Einstein
If the brightest brain in the world had the problem in
understanding the income tax, let alone lesser mortals like you and me.
However, let us discuss how one can save income tax by saving in National
Pension System (NPS) and what EXCLUSIVE AND ADDITIONAL benefits are extended by
NPS for saving the income tax.
NPS is a Central
Govt sponsored system providing for income security after retirement. Detailed
information on NPS is available on www.pfrda.org.in.
Tax payers are
familiar with various savings schemes for reducing the liability of paying the
income tax. Each scheme has its own features in terms of:
·
return (interest rate, yield),
·
lock-in-period,
·
liquidity,
·
lienability (for availing loan),
·
convenience and investor services,
·
risk and risk appetite,
·
age of the investor
·
appreciation of the capital
·
Post-retirement income plan
·
tenure (maturity period),
·
entry-exit-maintenance load (charges),
pre-mature exit and its cost,
·
stages /time of income tax exemption
(EEE, EET and ETE : At the stage of Investment, Interest earning and Withdrawal
at the time of exit. E=Exempted, T=Taxed)
When
weighed (compared) against all these features, the NPS ranks at the top amongst
all the tax savings schemes. Moreover, investment in NPS is not just saves your
income tax but it also provides for regular pension after your retirement. Not
only the salaried employees but also the self-employed, professionals,
businessmen, etc are also eligible to join the NPS.
In
case of employees, there are two relevant Sections under which NPS deductions
fall:
1. Deduction under Section 80CCD(1B):
First
and foremost used route for Tax Savings scheme is under Section 80C which
covers popular instruments e.g. NSC, EPF, PPF, Life Insurance, Contribution in
NPS a/c (upto 10% of Basic + DA), Repayment of Housing Loan Principal, etc. The
maximum limit under this section is Rs. 1.50 lakhs.
However, under section 80CCD(1B), contribution in NPS upto Rs. 50000/- (or upto 10% of Basic+DA,
whichever is less) by the employee has EXCLUSIVE additional deduction benefit thereby one can get
deduction upto Rs. 2.00 lakhs. No other tax saving scheme affords this
additional benefit upto Rs. 50,000/-.
2. Deduction under Section 80CCD(2):
Employer’s contribution in NPS a/c of the employee up to 10% of the basic + DA is, in ultimate analysis, not considered as taxable income. Unlike Section 80CCD(1B), limit of Rs. 50,000/- is not applicable under 80CCD(2).
Where to open the A/c:
The PFRDA has appointed POPs (Point of
Presence) who are the interface point for the subscribers want to open NPS
account. Gujarat Infotech Ltd is one of approved POPs. Contact details of
Gujarat Infotech Ltd:
