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Tax Benefits under NPS

Tax Benefit available to Individual:
Any individual who is Subscriber of NPS can claim tax benefit under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)
An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.

Tax Benefits under the Corporate Sector:

  1. Corporate Subscriber:
    Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, up-to 7.5 Lakh.
  2. Corporates
    Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

How to make the Investment to avail the Tax Benefit:
If you are an existing Subscriber, you can approach any POP-SP or alternatively you can visit eNPS website (https://enps.nsdl.com) for making additional contribution in your Tier I account.
Please note: Tax benefits are applicable for investments in Tier I account only.

2. What will be the investment proof to avail the tax benefit under NPS?

The Subscriber can submit the Transaction Statement as an investment proof. Alternatively, Subscriber from "All Citizens of India" can also download the receipt of voluntary contribution made in Tier I account for the required financial year from NPS account log-in. It can be downloaded from the sub menu "Statement of Voluntary Contribution under National Pension System (NPS)" available under main menu "View" in NPS account log-in.

3. What are other tax benefits under NPS apart from available u/s 80CCD?

Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS:

  1. Tax benefits on partial withdrawal:
    Subscriber can partially withdraw from NPS Tier I account for specified purposes. Amount received from partial withdrawal are tax exempt u/s 10 (12B) of Income Tax Act.
  2. Tax benefit on Annuity purchase:
    Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
  3. Tax benefit on lump sum withdrawal:
    Upto 60% of the total corpus withdrawn in lump sum is exempt from tax.
    For example: If total corpus at exit is 10 lakhs, then 60% of the total corpus i.e. 6 lakhs, you can withdraw without paying any tax. So, if you use 60% of NPS corpus for lump sum withdrawal and remaining 40% for annuity purchase, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax as per the applicable tax slab.

4. What are the tax benefits on investments under Tier II account?

There is no tax benefit on investment towards Tier II NPS Account.