It is essential for the people who fall under the Income Tax Liability to pay their Income Tax as per the rules and regulations of the Income Tax Act 1961. But this doesn’t imply that the individual has to pay tax on the entire income they earn in a given financial year. There are certain provisions under which the individual is allowed to claim deductions against specific investments and expenses.
By planning taxes carefully, an individual can save a significant amount towards their tax liability and can also create an additional source of income for themselves. With dual benefits of tax saving and income generation, the investment into NPS comes with significant advantages and one such tax advantage that is available to the subscriber is under Section 80CCD (1B), which pertains to the contributions made towards NPS.
What is Section 80CCD (1B)?
The deductions offered to individuals contributing to NPS fall under Section 80CCD of the Income Tax Act and as per Section 80 C until 2015 an individual was eligible to claim an income tax deduction of up to Rs. 1 Lakh against contributions made to the NPS account. Later the Government enhanced the maximum amount payable to the NPS to Rs. 1.50 Lakh per annum. In addition to this, a new subsection 1B was also introduced to offer an additional deduction of up to Rs. 50,000/- for the contributions made by an individual taxpayer or subscriber of NPS.
Things to Remember While Claiming Deductions under Section 80CCD (1B)
While claiming tax deduction under Section 80CCD (1B), one should remember the following:
- The additional deduction of Rs. 50,000/- is available only for contributions made to NPS Tier-I accounts.
- Tier-II accounts are not eligible to claim the deduction under Section 80CCD.
- The deductions are only available to salaried individuals and self-employed individuals.
- The subscriber needs to produce documentary evidence of the transaction related to the contribution to their NPS account.
- Partial withdrawals are allowed but only under specific terms and conditions.
- The total exemption limit under Section 80CCD(1B) is Rs. 50,000/- and is independent of exemptions under Sec. 80 C. Thereby, you can claim a maximum deduction of Rs. 2,00,000/-
- In case the subscriber dies, and the nominee can decide to close the NPS account and the amount that the nominee will receive will be exempted from tax.
- In case partial withdrawals are made from the account, only 25% of the contribution made is exempt from tax.
- If the subscriber is an employee and decides to close the NPS account or opt out of NPS, then only 40% of the total amount is tax-exempted.
- The subscriber can withdraw 60% of the entire amount on reaching the age of 60 years as tax-free income. The remaining 40% is also tax-free if it is used to purchase an annuity plan.
Section 80CCD (1B) offers the subscriber a magnificent chance to save a significant sum on their tax liabilities and this way the subscriber would not just decrease their current tax liabilities but in addition, will pursue making a significant corpus for their retirement.
Benefits for Subscribers under Section 80CCD
Here’s a look at NPS tax benefits:
| Nature |
Section |
Maximum deduction |
Note |
| Deduction for employer contribution |
80CCD(2) |
10% of salary (no monetary limit) |
Outside 80C and 80CCD(1B) limits |
| Deduction for employee’s contribution |
80CCD(1) |
10% of salary, max up to Rs.1,50,000 |
Within Section 80C |
| Self-contribution to NPS |
80CCD(1B) |
Rs. 50,000 |
In addition to 80C and 80CCD(2) |
Why Alankit?
Alankit brings to you an attractive long-term saving avenue to efficiently plan your retirement through safe and regulated market-based returns. Below are the reasons why you should invest with Alankit.
- Managed by professionals.
- Enforces investment discipline.
- Quick Subscriber Registration Process.
- Tax Benefits.
Open your NPS account today and save taxes and corpus for a healthy and safe-sounding retirement.