Tax advantages: It’s “Tax Saving Season” once again. This is the time of year when the HR department requests documentation of investments and workers begin to concentrate on minimizing their tax obligations and exploring every possible way to reduce their income tax obligations.
The National Pension System is one of the less well-known yet crucial tax-saving tools (NPS).
Kurian Jose, CEO of Tata Pension Management, states that the NPS is a highly effective retirement product with a number of features, including asset allocation across equities, corporate bonds, G-Secs, and alternative funds depending on an individual’s risk appetite, professional fund management at incredibly low fund management charges, well regulated by PFRDA, portable across corporates, and additional tax benefits from investment in the same.
NPS provides alluring tax advantages.
- Section 80 CCD (1) of the Income Tax Act allows for a deduction of up to Rs 1.5 lakh for contributions made to the National Pension System.
- Under Section 80CCD (1B) of the Income Tax Act, NPS investments are the only ones eligible for an additional deduction of up to Rs 50,000. This exceeds the deduction of Rs. 1.5 lakh allowed under Section 80C of the Income Tax Act of 1961.
- Additionally, under section 80CCD (2) of the Income Tax Act, subscribers under the Corporate NPS model are eligible for additional tax benefits on investments up to 10% of their Basic Salary. The total benefit (including PF, Superannuation fund, and NPS) is limited to Rs 7.5 lakh, according to Kurian.
For those who receive benefits under the old income tax regime, all of the aforementioned tax-related exemptions apply, whereas for those who receive benefits under the new income tax regime, the Corporate NPS model applies.
Exempt-Exempt-Exempt (EEE) products include NPS.
- As previously mentioned, subscribers are eligible for tax deductions on their NPS contributions.
- Contributions generating returns with no tax deduction are eligible for the second exemption.
- Withdrawal is also tax-free up to a 60% threshold. “The 40% corpus annuity product purchase is likewise tax-exempt. Pension payments from an annuity investment are taxable at the subscriber’s appropriate rate at the time of payment, according to Kurian.
Because of this, people would be wise to learn about the National Pension System and take advantage of its unique tax advantages.
