Income tax benefits on NPS accounts
1) Income Tax benefit for NPS under 80CCD (1B):
Under this, salaried as well as self-employed NPS subscribers get a deduction for investment up to ₹50,000 in NPS (Tier I account) in a financial year.
If you are in the 30% tax bracket, it means a savings of ₹15,600 a year. This is over and above the deduction of ₹1.5 lakh available under Section 80C of Income Tax Act, 1961.
2) Income Tax benefit for NPS under Section 80CCD (1):
If you invest in NPS, you can avail a deduction of ₹1.5 lakh under Section 80CCD (1). This benefit is available for both the salaried and the self-employed.
But for salaried individuals the maximum deduction allowed under Section 80CCD (1) is 10% of their salary (basic + DA). This limit is 20% of gross income for self-employed.
But you must remember that the total amount of deduction under Sections 80CCD (1) (for NPS), 80CCC (investment in pension plan offered by an insurer) and 80C (PPF, tax-saving FDs, life insurance premium, ELSS etc) is ₹1.5 lakh per year.
3) Income tax benefit for NPS under Section 80CCD (2): This section relates to contribution made by the employer towards employees’ NPS account. It is available for both public and private companies.
There is no upper limit for employer’s contribution towards employee’s NPS account but the maximum deduction allowed under Section 80CCD (2) is 10% of employee’s salary in that particular year.