One of the most common investment mechanisms in India is the National Pension Scheme (NPS). It provides tax benefits of up to Rs 1.5 lakh and an additional gain of Rs 50,000, making it a common option for investment. NPS subscribers are allowed to make a minimum investment of Rs 1,000 per year, while Rs 500 per transaction is the minimum deposit amount. As per the following sections, the Income Tax Act provides benefits under NPS:
- Up to 10 percent of salary (Basic + DA) is eligible for tax deduction under section 80 CCD (1) of the Income Tax Act. This is below the average ceiling under Sec. 80 CCE of the Income Tax Act of Rs. 1.50 Lacs.
- Under 80CCD(2) up to 10 per cent of Basic & DA (no monetary ceiling). This deduction is over and above the 80 CCE threshold of Rs. 1,50 lacs.
- An additional amount of Rs. 50,000 (or more) can be voluntarily deposited into the NPS Tier I account by the employee and a tax deduction can be obtained on it under section 80 CCD 1(B), up to a limit of Rs. 50,000.
Key benefits for corporate employees
- Getting a pension scheme, just like the workforce of the government sector.
- Capability to transfer from one company to another company without altering PRAN (Permanent Retirement Account Number).
- Up to 10 percent of Basic Salary + Dearness Allowance can be allowed to them as an additional tax benefit.
- Corporate employees are allowed to transfer Superannuation Savings to NPS, but tax-free for one time only.
- Continue to deposit in NPS before the age of 70.
Know about the tax benefits for private employees
Under Section 80C, the overall tax deduction is Rs 1.5 lakh per annum. Any contribution to an NPS Tier 1 account enables you to receive an additional Rs 50,000 deduction. In compliance with Section 80C, private sector employee contributions to the NPS Tier-II account will not earn tax exemptions but will continue to be exempt from the lock-in period. It should be noted that there is zero tax on income up to Rs 2.5 lakh under the current taxation system; 5% for income between Rs 2.5 lakh and up to Rs 5 lakh; 10% for income between Rs 5 lakh and up to Rs 7.5 lakh; 15% for income between Rs 7.5 lakh and up to Rs 10 lakh; 20% for income between Rs 10 lakh and up to Rs 12.5 lakh; 25% for income between Rs 12.5 lakh and up to Rs 10 lakh respectively.
