What are the tax benefits of investing in nps

October 22 , 2020 |4 Comments

What Are The Tax Benefits Of Investing In Nps

1. First of all, deduction for NPS can be claimed for self contribution and also for employer contribution. 2. Self contribution is covered under 80CCD(1) which is a part of section 80C and also under section 80CCD(1B). 3. The maximum deduction one can claim under 80CCD(1) is 10% of salary which again should not exceed the overall limit of 80C which is Rs 1.5lakhs. Any additional self contribution can be claimed under section 80CCD(1B) which has a maximum limit of Rs 50,000. Therefore, deduction in respect of investment in NPS can be claimed upto Rs 2 lakhs

with these 2 sections. 4. Further, a self-employed taxpayer can also claim deduction under section 80CCD(1) [part of 80C] . The maximum limit specified for them is 20% of gross income which falls within the overall 80C limit of Rs 1.5lakhs. 5. Deduction is also available for employer contribution 80CCD(2) [this is outside 80C limit] This is ONLY for the employed. Deduction here is restricted to 10% of salary and no maximum monetary limit is specified.

6 Tax Benefits Of Investing In Nps

There is no escaping paying taxes, but thankfully there are provisions to reduce your tax outgo that can soften the pinch. Under Section 80CCD of the Income Tax Act, you can claim deductions against your contributions to the National Pension System or Atal Pension Yojana. Tax deductions under Section 80 CCD (1) are available to all individuals irrespective of whether he/she is employed at a government or private organisation or is self-employed. Here are the provisions: * If you are a salaried individual, the maximum deduction that you can claim under Section 80CCD (1) is 10% of your salary (basic pay + dearness allowance).

* If you are a self-employed individual, you can claim up to 20% of your total gross income. The deduction amount cannot exceed ₹1.5 lakh in a given financial year. Section 80 CCD (1B) is a new subsection that was introduced in the year 2015. Under this, you can claim an additional deduction of ₹50,000 irrespective of whether you are salaried or self-employed for your contributions towards NPS. This deduction can be claimed over and above the maximum deduction of ₹1.5 lakh that can be claimed under Section 80 C. Thus, you can claim up to ₹2 lakh as deduction against your NPS

investment. Section 80 CCD (2) is applicable only if you are a salaried employee and your employer makes contributions towards your NPS. Your employer's contributions can be equal to or higher than your contributions. You can claim up to 10% of your salary, which includes basic pay and dearness allowance. This deduction can be claimed over and above the deductions claimed under Section 80 CCD (1).

Nps Vs Elss Tax Benefits While Investing

Both the schemes of NPS and ELSS are eligible for claiming tax deductions. Up to Rs 1.5 lakh put in ELSS gets deduction under Section 80C. NPS is also eligible for deduction under Section 80CCD(1) with an overall ceiling of Rs 1.5 lakh under Section 80C. But NPS subscribers also get an additional deduction of up to Rs 50,000 under Section 80CCD (1B). And if you are salaried and your employer also puts money in NPS, then you can claim more tax deductions up to 10% of their basic salary in the NPS under Section 80CCD(2). There is no cap on this deduction. By the way, when referring to NPS, we are referring to NPS Tier 1 Account and not the Tier 2 account. Both types

of NPS accounts serve different purposes and have different tax implications and lock-ins. You can read here more about the difference in NPS Tier 1 Vs NPS Tier 2 Accounts.

Nps Vs Ppf Tax Benefits While Investing

There we have it. The tax benefits of NPS. And the tax benefits of PPF. Many people were waiting to hear just that. 🙂 These people are concerned only with saving as much as taxes and not with achieving their financial goals (why this is wrong?). And it’s a case of can’t see the forest for the trees. PPF gets tax benefits of up to Rs 1.5 lac under Section 80C of the Income Tax Act. But as you know, there are many options for you to use for tax benefits under Section 80C (like insurance premiums, EPF and VPF contributions, home loan principal repayment, etc.) NPS also gives you tax benefits. Your investments in NPS are eligible for deductions up to Rs 1.5 lacs under Section 80CCD(1) of the Income Tax Act. And this benefit under Section 80CCD(1) is a part of Section 80C of the Income Tax But there

is something else. NPS subscribers also get exclusive extra tax benefit of Rs 50,000 under Section 80CCD(1B). So in a way, the total tax benefit available for your contributions to NPS is Rs 2 lac. And if your employer also takes the NPS route, then you can get even more tax benefits for your employer’s NPS contributions (though with some limits). You can read more about the latest NPS Taxation Rules too if you wish to deep dive in NPS taxations. The was about PPF and NPS Tax benefits at the time of investing. Shortly we will also see how the taxation on maturity differs for both NPS and PPF. But before that, let’s understand PPF and NPS Exit/Maturity Rules.

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What are the tax benefits of investing in nps