NPS tax benefit under Sec 80CCD (1b) of Rs. 50,000

NPS is now the only investment vehicle which allows you this additional tax deduction under section 80 CCD. (1B).

Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. Under this scheme, subscribers invest in a fund chosen by them and at the time of retirement they get a lump sum amount depending on the performance of that fund. The returns from NPS are not guaranteed; they are market-linked. NPS was introduced in 2004 for the new government employees but from 2009, it was extended to all on a voluntary basis.

NPS contribution & using 80CCD (1b)  is for you if you are already done with 80C Limit of 1.5lks and still want to save tax on 50,000. So using 80CCD (1b)  you can get extra benefit on 50,000 INR and total savings you can do with 80C+80CCD (1b)  is 2,00,000 INR.

Tax savings benefit under Sec 80CCD (1b):

The extra deduction of Rs. 50,000 on NPS can help those in the highest tax bracket of 30 per cent save an additional Rs. 16,000 in taxes. Those in 20 per cent tax bracket can save over Rs. 10,000 while those in 10 per cent can save over Rs. 5,000.

What are the tax benefits of NPS?

The various Tax benefit as under:

A. Employee Contribution: Deduction upto 10% of salary (basic+ DA) within overall ceiling Rs.1.50 Lakh u/s 80C.

B. Voluntary Contribution: Deduction upto Rs.50,000 u/s 80 CCD(1B) from taxable income for additional contribution to NPS.

C. Employer Contribution: Deduction upto 10% of salary (Basic + DA) from taxable income u/s 80 CCD(2). This is over and above the limits u/s 80C

What is National Pension System?

NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Under the NPS, the individual contributes to his retirement account and also his employer can also co-contribute for the social security/welfare of the individual. NPS is designed on Defined contribution basis wherein the subscriber contributes to his account, there is no defined benefit that would be available at the time of exit from the system and the accumulated wealth depends on the contributions made and the income generated from investment of such wealth. The greater the value of the contributions made, the greater the investments achieved, the longer the term over which the fund accumulates and the lower the charges deducted, the larger would be the eventual benefit of the accumulated pension wealth likely to be.

Reference: https://cra-nsdl.com/