You can save income tax through NPS investment and also create huge corpus; know how

The end of the Financial Year 2023-24 is coming closer. In the last two months and half, one needs to invest their money in the investment schemes which fall under tax exemption.

Many investors opt for National Pension Scheme, or National Pension System (NPS) to create retirement corpus.

The government scheme that help you create huge funds in the long run can also help you save your income tax considerably.

And not just in one way, but in three different ways.

Tax saving through NPS comes under Section 80C of the Income Tax Act, where one is eligible to save up to Rs 1.50 lakh through investments.

In this write-up, we will tell you how you can save income tax through NPS investment.

NPS: Income tax saving 

The tax exemption that any employee gets on NPS is available under 80CCD.

There are also two sub-sections in this, 80CCD(1) and 80CCD(2).

There is another sub section known as 80CCD(1B).

In this way, you can invest in 80CCD(1), 80CCD(2) and 80CCD(1B) i.e. in total 3 ways. Let us elaborate us more.

NPS: How and how much to invest in 80CCD(1)?

1- How and how much to invest in 80CCD(1)?

Under this, you can claim tax benefit under Section 80 CCD (1) with an overall ceiling of 1.5 lakh under Sec 80 CCE.

2- Tax exemption on Rs 50 thousand under 80CCD(1B)

If you have a Tier 1 account in NPS, you can claim an additional deduction of up to Rs 50,000 under 80CCD(1B). It means your total tax exemption under 80 C will reach Rs 2 lakh. 

3. The other method to get tax exemption is through the corporate sector. There are two ways to get it

NPS: Corporate Subscriber:
 

Under Section 80CCD (2) of Income Tax Act, employer's NPS contribution (for the benefit of employee) up to 10 per cent of salary (Basic + DA), is deductible from taxable income, up to Rs 7.5 lakh.

The end of the Financial Year 2023-24 is coming closer. In the last two months and half, one needs to invest their money in the investment schemes which fall under tax exemption. Many investors opt for National Pension Scheme, or National Pension System (NPS) to create retirement corpus. The government scheme that help you create huge funds in the long run can also help you save your income tax considerably. And not just in one way, but in three different ways. Tax saving through NPS comes under Section 80C of the Income Tax Act, where one is eligible to save up to Rs 1.50 lakh through investments.
In this write-up, we will tell you how you can save income tax through NPS investment.

Income tax saving through NPS

The tax exemption that any employee gets on NPS is available under 80CCD. There are also two sub-sections in this, 80CCD(1) and 80CCD(2). There is another sub section known as 80CCD(1B). In this way, you can invest in 80CCD(1), 80CCD(2) and 80CCD(1B) i.e. in total 3 ways. Let us elaborate us more.

1- How and how much to invest in 80CCD(1)?

1- How and how much to invest in 80CCD(1)?
Under this, you can claim tax benefit under Section 80 CCD (1) with an overall ceiling of 1.5 lakh under Sec 80 CCE.

2- Tax exemption on Rs 50 thousand under 80CCD(1B)

If you have Tier 1 of NPS, you can claim additional deduction of up to Rs 50,000 under 80CCD(1B). It means your total tax exemption uner 80 C will reach Rs 2 lakh. 

3. The other method to get tax exemption is through the corporate sector. There are two ways to get it

Corporate Subscriber:

Under Section 80CCD (2) of Income Tax Act, employer's NPS contribution (for the benefit of employee) up to 10 per cent of salary (Basic + DA), is deductible from taxable income, up to Rs 7.5 lakh.

Corporates

In the second condition, employer’s contribution towards NPS up to 10 per cent of salary (Basic+DA) can be deducted as ‘Business Expense’ from their profit and loss account.

NPS: Keep some things in mind

Salary here means your basic salary and the dearness allowance you receive, not the other allowances you receive. 

The calculation of 10 per cent or 14 per cent deduction will be limited to basic salary and dearness allowance.

Even if your CTC is Rs 10 lakh, but if your basic salary and dearness allowance is only Rs 3 lakh, you will get the benefit of only Rs 30,000 (after 10 per cent deduction). 

At the same time, this rule has also come into effect from 2020-21 that if the contribution made by the employer in NPS, Provident Fund, and Super Annuation Fund is more than Rs 7.5 lakh, then the taxpayer will have to pay tax on it.

You will also have to pay tax on the interest or dividend earned on that additional investment.

In the second condition, employer’s contribution towards NPS up to 10 per cent of salary (Basic+DA) can be deducted as ‘Business Expense’ from their profit and loss account.