How to avail more Tax benefits on NPS redemption


The subscribers of National Pension System take numerous tax benefits. Now they can avail more tax benefit on redemption of the retirement fund from National Pension System. Till now only NPS subscribers provided tax benefits up to Rs. 1.5 lakh, since now onwards NPS subscriber will be able to save Up to Rs. 50,000 Under Section 80CCD (1B).

Subscriber can also contribute up to 10% of his income basic and dearness allowance to their NPS account. And this portion does not treated as taxable income under section 80 CCD (2). So this is tax saving window in NPS.

Who can be the subscriber of NPS?

  1. Central Government Employee- All central Government employees joined after 1st January 2004, except armed forces.
  2. State Government Employees- All state Government employees.
  3. Corporate Bodies- Corporates have the flexibility to choose NPS as an investment option.
  4. Individual- All Citizens of India between the ages of 18 to 60 years as on date of submission of application can join the NPS.

NPS tax benefits-

NPS subscribers can avail tax benefits through three sections of Income tax- Section 80CCD (1), Section 80CCD (2) and Section 80CCD (1B).

Section 80CCD (1)-

Under section 80CCD (1) a subscriber of NPS can avail the tax benefit up to 10% of his basic salary and up to Rs.1.5 lakh dearness allowance. Self-employed this limit is 10% of their annual income but maximum limit is Rs. 1.5 lakh.

Section 80CCD (1B)-

Under this section, subscribers are provided with additional tax benefit of up to Rs. 50,000.

Section 80CCD (2)-

Subscriber can also contribute up to 10% of his basic salary + dearness allowance and avail tax benefit on this amount as well apart from the amount deducted under section 80CCD (1).

National Pension System follows the EET strategy. EET stands for exempt, exempt, tax. This means the subscriber will not be imposed with tax neither at the time of investment or at the time of earned returns during the tenure, but final redemption amount is taxable.

In last budget the Government made the 40% of final corpus tax free. So now NPS is the combination of EET (60%) and EEE (40%).

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