Save Tax through National Pension Scheme

The 2017-18 financial year-end is fast approaching. You must already be busy planning to save tax. After all, you get a deduction of Rs 1.5 lakh. But did you know you can claim an extra deduction of Rs 50,000, provided you plan for retirement?

A majority of Indians may not be planning for retirement, based on Reserve Bank of India (RBI) report on Household Finance*. But doing so can help you in your old age and, better still, help you save more tax. And you can do this by investing in National Pension System (NPS).

So, let’s first understand what NPS is.

What is NPS and how it works?

• NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
• It is a retirement plan. A working individual can deposit a certain amount every month or invest a lump sum in the NPS account.
• A registered pension fund manager invests this money in equity (E), corporate bonds (C) or government securities (G).
• These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
• Every Indian citizen having an age between 18 and 65 years including non-resident Indians (NRIs)** can invest in NPS.

What are the tax benefits?

Tax Deduction under section 80C

• Under Section 80C, a salaried individual can get a tax deduction of up to 10% of salary (Basic + DA)maximum upto Rs 1.5 lakh from NPS; for self employed, it is 20% of total income.

Additional Tax Deduction under Section 80CCD (1B)

• As you know that, the income tax deduction limit for investments made under Section 80C is Rs 1.5 lakh.
• But now you can claim an additional deduction of Rs. 50,000 by investing in NPS under Section 80CCD (1B). This brings the total deduction to Rs 2 lakh.

Remember, this deduction benefit is available only on Tier 1 NPS accounts. Tier 2 account is not eligible for any tax deduction. Read ahead to know more about features.

Options fitting your needs

There are two types of NPS accounts: Tier 1 and Tier 2. Both differ on several parameters like:

Offers Flexibility in choosing the desired asset allocation

• NPS offers 2 choices for asset allocation between Equity and Debt: Active and Auto choice

Besides this, it provides flexibility to subscriber to change Pension Fund Manager once in a financial year and investment Option twice in a financial year.

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