Income Tax Benefits under NPS
Income Tax Benefits under NPS Tier-I Account
Income Tax Benefits for Salaried Individuals: An investment up to 10% of salary (basic + dearness allowance) is deductible from taxable income under Section 80CCD(1) of the Income Tax Act in a financial year, subject to a limit of Rs 1.5 lakh under Section 80C. Additionally, investment up to Rs.50,000 is also deductible from taxable income under Section 80CCD(1B). If the employee's investment has been routed through the employer, the employer's contribution to NPS up to 10% of salary (basic + DA) is allowed deduction under Section 80CCD(2).
Income Tax Benefits for Self-employed Professionals: For self-employed professionals, investment up to 20% of gross annual income is deductible from taxable income, subject to a limit of Rs 1.5 lakh. Additionally, an investment up to Rs.50,000 is deductible from taxable income under Section 80CCD(1B) of the Income Tax Act, 1961.
Please note that the individuals can claim an additional deduction of up to Rs 50,000 under Section 80CCD (1B), which is in addition to Rs 1.5 lakh permitted under Section 80C.
It will be clear from below-given table:
| Income Tax Section | Contributor | Amount Deductible |
|---|---|---|
| 80CCD(1) | Employee | 10% of (Basic+DA) |
| 80CCD(1) | Sel-Employed | 20% of Total Annual Income |
| 80CCD(2) | Employer | 10% of (Basic+DA) |
| 80CCD(2) | Sel-Employed | Not Applicable |
| 80CCB(1B) | All Individuals | Rs. 50,000 |
Income Tax Benefits under NPS Tier-II Account
There is no tax benefit under Tier II investments for subscribers, however, w.e.f. April 1, 2019, Central govt. employees who contribute under Tier II account, can claim tax deduction under section 80C (maximum limit Rs. 1.5 lakhs) with a lock-in period of 3 years.
Other subscribers may claim indexation benefit on amount withdrawn from NPS Tier-II Account.