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NPS Tax Benefits

Contribution to NPS are tax deductible under 80CCD (1), Section 80CCD (1B) and Section 80CCD (2) of the Indian Income Tax Act, 1961

Tax benefits on contribution to NPS Tier I Account

Under Section 80CCD (1),

  • NPS subscriber (salaried employees) can claim a deduction on their contribution to NPS of up to 10% of the salary (Basic + Dearness Allowance).
  • The self-employed NPS subscribers can claim a tax deduction up to 20% of their gross income or Rs. 1,50,000 whichever is less.

This deduction is within the limit of tax deduction U/S 80C

Section 80CCD (1B)

  • NPS subscriber can claim tax deduction on an additional self-contribution upto Rs. 50,000/-

The tax deductions mentioned above under different sections of the IT Act are exclusive of each other.

How to make an additional contribution to avail tax benefit?

Subscriber can click on “contribute more in NPS ” to make an additional contribution to the NPS Tier I account or approach branch.

Under Section 80CCD (2),

Contribution made by employer on behalf of NPS subscriber are tax deductible subject to:

  • Maximum of 10% of the salary (Basic Salary + Dearness Allowance).
  • The total deduction for all retrial contribution made by employer including Provident Fund, Super Annuation Fund and NPS cannot exceed Rs. 7.5 lacs.

The deduction under the section is over and above the limit of Rs. 1,50,000 under Section 80CCD (1).

Tax treatment for NPS at the time of Exit.

For Premature Exit from NPS

NPS subscribers who wish to exit NPS before maturity of the scheme can withdraw 20% of the corpus. The amount withdrawn is exempted from tax.

For lumpsum withdrawal at retirement

Once the NPS subscriber attain the retirement age (60 years), Subscriber is eligible to withdraw 60% of the corpus in lumpsum. The amount withdrawn is exempted from tax.

For Purchasing Annuity

The amount that the subscribers use for purchasing an annuity is fully exempted from tax.

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