Income Tax Alert! Reached investment limit of Rs 1.5 lakh? Get Rs 50,000 relief, try this option

Income tax alert! If an earning individual has reached the Rs 1.5 lakh per annum limit of investment in funds like Public Provident Fund or PPF, Employees Provident Fund or EPF, Provident Fund or PF, Voluntary Provident Fund or VPF, Equity Linked Savings Scheme or ELSS Mutual funds, insurance policies and more, then he or she can get additional tax exemption too. 

The additional benefit can be had if investors invest in National Pension System or NPS scheme as it also helps an investor real the income tax benefits of up to Rs 50,000 per annum. This Rs 50,000 income tax deduction is given to an investor under the Income Tax Act Section 80CCD and it's an additional benefit. It has nothing to do with the Rs 1.5 lakh income tax exemption given to an investor under Section 80C of the Income Tax Act 1961.

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Speaking on the NPS scheme Manikaran Singhal, a SEBI registered tax and investment expert said, "NPS accounts are of two types — active mode and auto mode. It is also pronounced as Tier-1 and Tier-2 NPS account. Tier-1 is active mode and Tier-2 is auto mode. In the active mode NPS account, an investor can evaluate one's return annually and can switch from equity to debt fund and debt funds to equity fund options. While in auto mode, there would be 8 fund managers handling investor's money and making a switch from debt fund to equity funds and vise versa options." 

Manikaran said that in NPS scheme, one can have an income tax exemption on NPS investment up to Rs 50,000 under Section 80CCD and this income tax exemption is additional to Rs 1.5 lakh given to each investor for investing in the investment schemes falling under Section 80C of the Income Tax Act 1961.

Comparing NPS scheme with the PPF option Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "Due to the equity exposure, if someone chooses the 50:50 option of the equity and the debt options in NPS scheme, in long run debt option would give around 8 per cent returns like PPF while the equity exposure would give at least 12 per cent returns in the long-term. Means, if a person invests Rs 100 in NPS scheme's active mode and Rs 100 in NPS scheme's auto mode, he or she would get 8 per cent returns in active mode while in auto mode his or her returns would be 10 (6+4 = 10) per cent returns, which is 2 per cent higher than the PPF — best retirement-oriented investment option for an investor whose risk appetite is lowest."