×

CONSULT US

Blog

National Pension System (NPS) – Additional Tax Saving Option

National Pension System (NPS) is a pension cum investment scheme launched by the Government of India to provide old age security to Citizens of India. It brings an attractive long-term saving avenue to effectively plan your retirement through safe and regulated market-based returns. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA). National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS.

Models of NPS Accounts

NPS accounts are primarily of two types, Individual NPS accounts (All Citizens Model) and Corporate NPS accounts.

All Citizen Model

In an Individual NPS account, the subscriber (Account holder) is the only contributor. All selections pertaining to Scheme preference, Investment choice, Annuity Service Provider, etc. are done by the subscriber alone. Any citizen of India can voluntarily choose to open an Individual NPS account to avail of tax benefits on investments and to ensure regular income post-retirement. The entry age is from 18 to 70 years.

Corporate Model

In a Corporate NPS account, the subscriber and the employer can both contribute to the subscriber’s NPS account. A corporate entity will have to register for corporate NPS for the employees to be able to avail of corporate NPS benefits. Know more about corporate NPS.

Tiers in NPS

Tier I: It is also called a pension account. Contributions up to Rs. 50,000 made in this account are eligible for additional deduction from taxable income under section 80CCD (1B). This is over and above limit of Rs 1.5 lakhs- under section 80C. Withdrawals are restricted and subject to terms and conditions.

Tier II:  You can invest an additional amount in Tier II NPS account. The subscriber is free to withdraw his entire accrued corpus under Tier II at any point of time. In case you have not contributed even the initial contribution towards Tier II a/c, it will be automatically deactivated as per process. No tax benefits are available in this account. Funds from Tier II can be transferred to Tier I

* Funds from Tier I can not be transferred to Tier II.

Tax Benefits

80C

Individual contribution is eligible for deduction up to Rs 1.5 lakh limit from the taxable income u/s 80C. This means that NPS is also an investment tool under 80C.

80CCD (1B)

Individual Contribution is eligible for Additional deduction up to INR 50,000 u/s 80CCD(1B) from the taxable income. This is over and above 80C

80CCD (2)

Employer Contribution up to 10% of salary (Basic+DA) is deductible from taxable income u/s 80CCD(2) of the Income Tax Act. This benefit is over and above 80C & 80CCD(1B).

Note: Tax exemption for Employer contribution in NPS, PF & Superannuation is capped upto Rs 7.5 lacs pa.

Options for NPS

Choosing to create an NPS account is one of the first steps that any person can take toward financial planning. In order to encourage people to opt for pension plans, it has also lowered the age barrier. Currently, anyone who is 18+ years can open an NPS account through which they will get a Permanent Retirement Account Number (PRAN) that allows easy portability in case the need arises, including a change in location or job. Thus, even people who are young can gain an idea about equity and debt asset classes in a tax-efficient, cost-efficient, and performance-efficient manner. The minimum contribution is as low as Rs. 500 (one time) and Rs. 1,000 (yearly) for Tier I accounts and Rs. 250 (annually) for Tier II accounts. Contributions to NPS accounts can be made up to 70 years of age.

A portion of the NPS also goes to equities which may not offer guaranteed returns. However, the returns offered are much higher than traditional tax-saving investments like the PPF. Further, an NPS account can be opened hassle-free both online as well as offline.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.

Share

About

Affluence Advisory Pvt. Ltd. is established with the vision to provide one stop solutions to clients needs in ever changing environment. Affluence is managed by specialized team of Chartered Accountants, Company Secretaries, Corporate Lawyers and Other Professionals committed to provide quality experience to our clients in the widest spectrum of business needs.

Recent Posts

April 1st, 2023
SEBI has approved following amendments in its Board Meeting
March 27th, 2023
Common and simplified norms for processing investor’s service requests by RTA’s and norms for furnishing PAN, KYC details and Nomination
March 23rd, 2023
Additional affirmations by Practicing Company Secretaries (PCS) in Annual Secretarial Compliance Report
March 20th, 2023
Peer to Peer (P2P) Lending in India
March 17th, 2023
Regulatory Framework – Liability of Independent Director
March 15th, 2023
Social Stock Exchange (SSE) – Fund Raising Platform for “Not for Profit Organizations” (NPO)
March 13th, 2023
MSME Registration Benefits – Tax and Others
March 10th, 2023
Link PAN with Aadhaar by March 31: SEBI direction to Investors
March 8th, 2023
Importance of Credit Score
March 6th, 2023
Closure Of The Company – Various Exit Modes Of Voluntary Winding Up
March 2nd, 2023
FAQ’s on Social Stock Exchange
March 2nd, 2023
Latest Key Amendments Effective from April 01, 2023
February 25th, 2023
Consultation Paper On Strengthening Corporate Governance At Listed Entities By Empowering Shareholders – Amendments To The SEBI (LODR) Regulations, 2015
February 24th, 2023
National Pension System (NPS) – Additional Tax Saving Option
February 20th, 2023
Tax Deduction and Documentation for Salary – AY 2023-24
February 13th, 2023
SEBI Consultation paper on review of Corporate Governance norms for a High-Value Debt Listed Entity dated February 08, 2023
February 9th, 2023
SEBI revamps buyback methods and provisions relating to buybacks
February 7th, 2023
SEBI circular on achieving min public shareholding
February 3rd, 2023
Off Market transfer of shares without consideration is not allowed – SEBI
February 2nd, 2023
Informal Guidance to proposed to be listed company – Extending share based employee benefits to employees of a subsidiary company
February 1st, 2023
Generating Awareness on the availability of Disputes Resolution Mechanisms at Stock Exchanges against Listed Companies / Registrar to an Issue and Share Transfer Agent
January 30th, 2023
Remuneration paid to Directors of the Listed Entity – Series 3
January 25th, 2023
Upgradation of E- Forms in tune with V3 portal
January 23rd, 2023
SEBI Notification dated 17/01/23 | Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2023
January 19th, 2023
Remuneration paid to Non-Executive Directors of Public Company – Series 2
January 16th, 2023
Remuneration paid to Whole Time Directors of Public unlisted Companies
January 11th, 2023
Relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
January 9th, 2023
Online registration of units through MCA portal for ESI registration and inspection of units in this regard
January 6th, 2023
Guidance given by Securities and Exchange Board of India (‘SEBI’) on creation of ‘Suspense Escrow Demat Account’
January 5th, 2023
Change in Single Master Form (SMF) on FIRMS Portal
January 3rd, 2023
Relaxation with respect to conducting of Extra Ordinary General Meetings and Postal Ballots
December 30th, 2022
MCA extension for conducting Annual General Meetings through Video Conferencing or other Audio Visual Means (‘OAVM’)
December 23rd, 2022
Web-based Form DPT-3 as per New Rules
December 13th, 2022
Input Tax Credit (‘ITC’) on Corporate Social Responsibility (‘CSR’) expenses
December 7th, 2022
GSTR 9 and 9C – Optional to Mandatory reporting in FY 2021-22
September 27th, 2022
CSR Compliances as per New Rules 2022
September 20th, 2022
Mandatory appointment of Company Secretary
September 17th, 2022
Amendment To The Definition Of Small Company And Benefits
September 16th, 2022
Obligation to Indicate Director Identification Number (DIN)
September 7th, 2022
RBI issues Digital Lending Guidelines: Banks / NBFC