NPS Scheme: EXPLAINED | Income Tax exemption, GST, other benefits that National Pension System account holder must know

NPS Scheme: National Pension System (NPS) has the ability to solve one of the biggest challenges of an earning individual - it provides a monthly income after retirement! What makes NPS investment more lucrative is income tax exemption on up to Rs 1.5 lakh in a particular financial year. However, there are some more benefits on the front of income tax, Goods and Services Tax (GST) that an earning individual, especially a taxpayer must know.

Speaking on the GST benefit under the NPS Scheme; SEBI registered tax and investment expert Jitendra Solanki said, "While purchasing an annuity product or scheme, one will have to pay 1.8 per cent GST but in the case of NPS annuity (minimum 40 per cent), there is no GST levied on annuity purchased by the NPS account holders." He said that NPS is an Exempt, Exempt, Exempt (EEE) product, meaning the subscriber gets tax exemption at the time of investment, accumulation and withdrawal (maturity which is allowed up to 60 per cent in NPS scheme).

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Solanki went on to add that under the NPS Scheme, the amount withdrawn for emergency purposes (Partial Withdrawals) are tax-exempt under section 12B of Income Tax Act.

Elaborating upon the income tax benefit beyond Rs 1.5 lakh under Section 80C; Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "An NPS subscriber is allowed an additional tax deduction for contribution made to NPS under section 80CCD 1(B) of Income Tax Act subject to a maximum of Rs 50,000. This deduction is over and above the Rs 1.5 lakh limit prescribed under section 80CCE of Income Tax Act and thus, the overall deduction could be Rs 2 lakh if you contribute to NPS."