NPS Tax Benefits
National Pension System is another tool in hand for planning your tax obligation. Taxes are important for the nation's development, but highly impact individual's budget. Government has understood the individual's requirements, and hence allowed various tax benefits under the present Financial Budget, so you may start saving today under NPS to attain independence on retirement.
Deductions under Section 80CCD(1)
An individual may claim the tax benefit under section 80CCD(1) upto 10% of the Basic Salary + Daily Allowance with a maximum cap upto Rs 1,50,000/-.
Deductions under Section 80CCD(1B)
Government further allowed from Financial Year 2015-16 additional Rs 50,000/- deductions for the investments made by the individual in the National Pension System.
Deductions under Section 80CCD(2)
Income Tax Act has also included private employer's contribution in NPS on behalf of employees under the ambit of Section 80CCD(2). All citizens may claim additional benefit of tax deduction upto 10% of Basic Salary + Daily Allowances, if the contribution is made by the employers.
NPS Tax Benefits - Illustration
The following illustration describes, how individual was getting benefit out of the NPS scheme before passing of the financial budget in 2015 and how he may gain further benefits from financial year 2015-16.
| Tax Savings through NPS - [NPS contribution by Employee only] | Tax Savings through NPS - [NPS contribution by Employer and Employee] | ||||||
| Tax Rates (as Applicable) | 10% | 20% | 30% | 10% | 20% | 30% | |
| Salary (Basic + DA) | 4.00 | 8.00 | 15.00 | 4.00 | 8.00 | 15.00 | |
| Allowances | 1.00 | 2.00 | 3.00 | 0.60 | 1.20 | 1.50 | |
| NPS Co-Contribution from Employer (10% of Salary) | Nill | Nill | Nill | 0.40 | 0.80 | 1.50 | |
| Total Taxable Salary |
A | 5.00 | 10.00 | 18.00 | 5.00 | 10.00 | 18.00 |
Deductions from Taxable Salary available under NPS before 2015 Financial Budget
| Tax Savings through NPS - [NPS contribution by Employee only] | Tax Savings through NPS - [NPS contribution by Employer and Employee] | ||||||
| Employee Contribution (10% of salary) under Section 80CCD(1) | i | 0.40 | 0.80 | 1.00 | 0.40 | 0.80 | 1.00 |
| Employer Contribution (10% of salary) under Section 80CCD(2) | ii | Nill | Nill | Nill | 0.40 | 0.80 | 1.50 |
| Total Deductions | iii=i+ii | 0.40 | 0.80 | 1.00 | 0.80 | 1.60 | 2.50 |
| Taxable Salary | iv=A-iii | 4.60 | 9.20 | 17.00 | 4.20 | 8.40 | 15.50 |
| Tax including surcharge |
v | 0.22 | 1.12 | 3.45 | 0.18 | 0.96 | 2.99 |
Deductions from Taxable Salary available under NPS after 2015 Financial Budget
| Tax Savings through NPS - [NPS contribution by Employee only] | Tax Savings through NPS - [NPS contribution by Employer and Employee] | ||||||
| Employee Contribution (10% of salary) under Section 80CCD(1) | B | 0.40 | 0.80 | 1.50 | 0.40 | 0.80 | 1.50 |
| Employer Contribution (10% of salary) under Section 80CCD(2) | C | Nill | Nill | Nill | 0.40 | 0.80 | 1.50 |
| Investment under Section 80CCD(1B) | D | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 |
| Total Deductions | E=B+C+D | 0.90 | 1.30 | 2.00 | 1.30 | 2.10 | 3.50 |
| Taxable Salary | F=A-E | 4.10 | 8.70 | 16.00 | 3.70 | 7.90 | 14.50 |
| Tax including surcharge |
G | 0.16 | 1.02 | 3.14 | 0.12 | 0.85 | 2.68 |
| Additional Tax Saving by investing in NPS with effect from Financial Year 2015-16 |
v-G | 0.06 | 0.10 | 0.31 | 0.06 | 0.11 | 0.31 |
