NPS benefits: Save your money, get extra income tax exemptions from National Pension Scheme

NPS Account: Pension fund regulator PFRDA has sent its proposal to the  Central Government to increase the income tax exemption limit under the National Pension Scheme (NPS) from existing Rs 50,000 to Rs 1,00,000. According to the tax and investment advisors, the Central Government is in the mood this time to comply with the PFRDA's recommendation and grant income tax exemption limit of up to Rs 1,00,000 investments in a financial year under Section 80 CCD (1B) of the Income Tax Act 1961. They are bullish about the PFRDA's recommendation being met as the Narendra Modi Government has recently increased the income tax exemption limit from NPS maturity amount from 40 per cent to 60 per cent. So, in the coming times, an investor who has a lesser risk appetite can get attracted to the NPS scheme.

Speaking on the benefits of the NPS scheme, SEBI registered tax and investment expert Manikaran Singhal said, "Under Section 80 CCD (1B) of the Income Tax Act, an earning individual can claim income tax exemption up to Rs 50,000 in a financial year. This tax exemption is added to the Section 80C limit of Rs 1.5 lakh per annum. So, NPS can be a good investment tool for those who have already scaled the income tax exemption limit of Rs 1.5 lakh." He said that Section 80C allows up to Rs 1.5 lakh income tax exemption in a financial year. If an income tax payer includes Section 80CCD (1B), this annual limit can be raised up to Rs 2 lakh.

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Elaborating upon other benefits, Jitendra Solanki, a SEBI registered tax and investment expert said, "An NPS account holder can claim 10 per cent Income Tax exemption under Section 80CCD on one's gross income with a limit up to Rs 1.5 lakh in a year. If the NPS subscriber is self-employed, then he or she can claim a 20 per cent income tax exemption on gross income." 

Solanki went on to add that in the case of government employees (except Armed Forces) who joined services after 1st January 2004 and voluntary,  in case of those working in private sector, an additional deduction of up to 10 per cent of salary (basic + DA) irrespective of any limit qualifies for income tax deduction under Section 80 CCD(2). This is an additional benefit to save income taxes over and above the limit of Rs 2 lakh as mentioned earlier.

Singhal said that in the case of a government employee, he or she can enjoy a higher income tax deduction of 14 per cent of employer's contribution. So, if you haven't opened your NPS account, you should open it on an urgent basis. NPS account can be opened online as well.