NPS Tax Benefits: NPS means National Pension Scheme, there are two types of accounts for investment in it. Tier 1 and Tier 2. Does investing in both provide tax benefits? What are the tax benefits available in these, know here…
NPS Tier 1 & 2 Tax Benefits: Investing in National Pension System (NPS) provides tax benefits but NPS also has two types of accounts. Tier I and Tier II. Now NPS Tier I is suitable for retirement planning, while Tier II NPS account works as a voluntary savings account. Tier I NPS investment is for long term and the amount cannot be withdrawn till retirement whereas this is not the case with Tier II NPS accounts. But what are the tax benefits available in both of these. Let’s know.
Tax exemption is not available in NPS II
Let’s talk about NPS II first. If you are investing in NPS Tier II and wondering whether you will get tax exemption on it or not, then the answer is clearly “no”. Tier II account is not designed for tax saving. However, there is a special tax saver scheme only for central government employees, which has a lock-in period of three years and tax exemption is available under section 80C.
Tax exemption is available on Tier I account
Investing in Tier I account provides tax benefits, but there are some conditions for withdrawing money from it. The benefit of tax exemption depends on whether you are in the old or new tax system.
Exemptions in the old tax regime
Deduction up to Rs 1.5 lakh is available under section 80C
Additional deduction of Rs 50,000 is available under section 80CCD(1B)
Employer’s contribution is exempted under section 80CCD(2):
10% of basic salary + dearness allowance in private sector
14% of basic salary + dearness allowance for government employees
This deduction is over and above the limits of Rs 1.5 lakh and Rs 50,000
Tax exemptions in new tax regime
Only employer’s contribution under section 80CCD(2) is tax free.
In both government and private sectors, employer’s contribution is tax free up to 14%.
