This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in
We all want to save taxes. We all invest to save taxes. Some invest in PPF, some in ELSS, some in NSC, some invest in 5-year bank fixed deposits. But, we all know the maximum investment limit for saving tax under section 80C is Rs. 1,50,000. So, we all want to save more tax, over and above 80C. But, there are only a limited number of investment options which provide tax exemption other than 80C. One of those options is NPS – National Pension System.
Introduced in Budget 2015, your contribution in NPS can save you tax of up to Rs. 15,450, if you are in the highest tax bracket of 30%. NPS provides an additional deduction of Rs. 50,000 from your taxable income. Interested? Read on.
So, let’s start our journey to know more about this tax saving investment avenue and see whether it truly makes sense to invest in it or it is better to pay tax and invest in mutual funds to earn higher tax-free returns.
How to open an NPS account?
Online Account – There are 2 ways to open an NPS account online – one, directly through NPS Trust’s website and two, through an intermediary, like your bank, ICICI Direct, HDFC Securities etc.
Offline Mode – You can also approach a POS (Point of Service) and get this account opened.
Documents Required – PAN card copy, address proof copy, 2 passport-size photographs, investment cheque and Duly Filled Subscriber Registration Form.
Exclusive Tax Benefit u/s 80CCD (1B)
If you decide to invest in NPS, you can avail a tax exemption of Rs. 50,000 from your taxable income. As the minimum investment requirement is Rs. 6,000, you can contribute any amount between Rs. 6,000 and Rs. 50,000 to save tax.
Which Account is eligible for Rs. 50,000 Deduction – Tier I or Tier II? – Your contribution to Tier I account is eligible for up to Rs. 50,000 tax deduction u/s 80CCD (1B). Tier II account does not entitle you to any tax deduction.
Minimum/Maximum Annual Contribution – As per the NPS rules, you need to contribute at least Rs. 6,000 in this account in a financial year. However, you can do so in multiple instalments and minimum contribution in a single contribution is Rs. 500.
However, there is no upper limit on your contribution to NPS. You can contribute any amount to your NPS account. But, as far as tax benefit is concerned, you can have only up to Rs. 50,000 in tax deduction.
Six/Seven Pension Fund Managers – These are the pension fund managers (PFMs) which are managing the subscribers’ money in NPS at present.
- HDFC Pension Management Company
- LIC Pension Fund
- ICICI Prudential Pension Fund
- Kotak Mahindra Pension Fund
- Reliance Pension Fund
- SBI Pension Fund
- UTI Retirement Solutions
Seven Annuity Service Providers – These are the insurance companies which would provide you pension as you retire at 60 years of age.
- Life Insurance Corporation of India (LIC)
- SBI Life Insurance
- ICICI Prudential Life Insurance
- Bajaj Allianz Life Insurance
- Star-Daichi Life Insurance
- Reliance Life Insurance
- HDFC Standard Life Insurance
Where your money gets Invested? – Your NPS contribution will get invested in Equity (E), Government Securities (G) or Corporate Debt Securities (C) either as per your own choice (Active Choice) or as per your age (Auto Choice).
Active Choice – Under “Active Choice”, you can have your money invested in these three asset classes as per your own choice. You can allocate your money among these three asset classes (E, G or C), but there is a cap of 50% for Equity (E) investment allocation.
Auto Choice – Under “Auto Choice”, your money gets invested based on your age i.e. the higher your age as the subscriber, the lower would be the allocation for Equity.
Returns – As NPS is completely market driven, there is no guaranteed/defined return in this pension scheme. Returns get accumulated throughout its tenure and get paid as annuity or lump sum benefit on maturity.
Historical Equity Returns of NPS (Returns as on 31st December, 2015)
Historical Corporate Debt Returns of NPS (Returns as on 31st December, 2015)
Historical Government Securities Returns of NPS (Returns as on 31st December, 2015)
Charges – This account attracts a processing charge of 0.25% of your contribution amount, subject to a minimum charge of Rs. 20, plus service tax as applicable. So, if you contribute Rs. 6,000, then Rs. 20 + service tax will be the charges. In case your contribution is Rs. 50,000, then a charge of Rs. 125 + service tax will be deducted from your account.
Exit – As you turn 60, you will be required to use at least 40% (maximum 100%) of your accumulated savings to buy a life annuity from an insurance company. Rest 60% or less, you can withdraw as lump sum amount. If you decide to exit before 60 years of age, you will have to buy an annuity with 80% of your accumulated savings, rest 20% amount you can withdraw as the lump sum benefit. Both, annuity income as well as the lump sum withdrawal, will be taxable.
In case of death before 60 years of age, entire pension corpus will be paid to the nominee of the subscriber.
Should you invest in NPS?
Please check this post – Should you invest in NPS Post Budget 2016?
Also, if you think I have missed to cover any important aspect(s) of NPS, then please share it here, I’ll try to include it in the post above.
Sir i am teacher in delhi college. I have LIC+Housing loan principal repayment+ tax saver MF = savings More than 1.5Lakhs, my contribution to NPS is 140000 into tier- 1 which is 10% of my salary. Can i claim 50,000 under 80ccd 1b or not? Please inform me.
Dear Sir
I have a NPS account and i am a PSU employee. My husband contributed additional 50000 in my NPS account from his salary account. I Just want to know whether my husband can claim deduction under 80ccd(IB) for contribution made in my NPS account through his account.
Hello sir, is there any benefit of pqyment gateway charges – 0.80% and service tax 15% so when I deposit amount that charges are debited in my amount. So there are any benefits for this service tax charges.?
Does NPS contribution by self comes under 1.5 Lac limit describe under 80c or it is above this…??
Hi, If i claim employers contribution in NPS to 80CCD(2), do i need to include employers contribution in my gross salary also or gross salary will be excluding employers contribution.
example-(hypothetical)
my gross salary- 8lac(gross salary from my salary slips)
my NPS contribution- 60K
Government NPS contribution-60K
Than i claim 80 CCD(2)
my gross salary will be 8lac or 8.6 lac????????
Dear Sir
I have come to know about NPS contribution only now. can I contribute now and claim the same in the income tax return before this July 30th? Please tell me fast…
Dr. Prasad Pannian
Sir i am cg employee. I have LIC+Housing loan principal repayment+ tax saver MF = savings More than 1.5Lakhs, my contribution to NPS is 72,000 into tier- 1 which is 10% of my salary. Can i claim 50,000 under 80ccd 1b or not? Please inform me.
Sir i am cg employee. I have LIC+Housing loan principal repayment+ tax saver MF = savings More than 1.5Lakhs, my contribution to NPS is 72,000 into tier- 1 which is 10% of my salary. Can i claim 50,000 under 80ccd 1b or not? Please inform me.
hello sir
My name is sanjay and i am a govt. servant and Govt. deduct Rs.50,000 annually from my salary as NPS. Also it contribute Rs.50,000/- towards my NPS as employer’s share. Now i want to know whether i am eligible for tax rebate on Rs.50,000/- under section 80 CCD (1B).
thanks in advance.
Dear sir,
Regarding NPS as govt.declared add. 50000 investing in Nps but I m PSU employee and Omg contribution already deducted every month in Nps and near about 45000 now amount contributed. Can I claim this is the New tax benifit as declared by gov. Or I can invest another 50000 for get the tax benefit other than80c? If the amout contributed every month consider as this tax benefits than I can this invest ment not consider in 80c.
If one has resigned from a company and is on a 1 year sabbatical, should he /she continue investing in National Pension Scheme to keep it active?
Are there any benefits? And is there some minimal amount per year (or per month) that an NPS account holder should continue to invest (much like PPF?
Kindly clarify the situation and provisions for such an individual who has still not attained retirement age of 58 years.
I am in HP govt service. From 1998 to 2007 I was under contact and regularized since 2008 and covered under NPS scheme. In the AY 2016-17 I have invested Rs.150000/- in PPF, insurance etc except my share in NPS Rs.60000/- Now I want to claim Rs.50000/- u/s 80CCD(1B) but my employer has refused to claim this deduction and issued me Form 16 without considering Rs.50000/- u/s 80CCD(1B). Please clarify if I could get deduction u/s 80CCD(1B) at the time of filing my return.
Sir i m a government servent and i have investment of 150000 under section 80c, ie, LIC,PLI,PPF etc. and 50000 in 80 ccd-1b in nps through treasury in tier 1 account.is it valid? How can i show my form 16?
Dear Shiv, could you please describe the details about u/s80ccd(2) & u/s80cce for NPS.
Dear Sir,
Post retirement (Age 60), what is taxable.
a) Whole Corpus (Principle + Interest)
b) Only Interest.
As per my understanding whole corpus (a) is taxable.
But how can my invested amount be taxable?? Ideally taxes should be levied on interest, as in case of FD..
I joined the scheme when I was 58 and retired at 59 years. I was informed that post retirement if your corpus value is less than 2 lakhs there wont be any tax deduction, and you can claim the whole amount. Request Mr. Shiv to kindly add his valuable comments on the same.
Dear Sir
Thanks for information of NPS , from where we will get the best return,
I am in private sector
Regards
Rajesh
Even in my case the PRAN is generated on 25th Mar 2016. However the units are allocated only on 4th april. I had sent the cheque along with application form.
Not sure whether i will get Tax benefit as the units allocated only on 4th april as per the statement. Pls clarify
Rgds
Anil
Thanks Shiv for the article.
I am employed in a private company and according to the rules upto 10% of my basic I have declared to contribute to my PRAN directly from my salary . Now this 10% amount comes to be say 30K per annum . I have 20K window more to invest and I have already invested 1.5 L/A under 80C. In this case where this 30K I can show ?
Can I invest 20K more under 80ccd(1b) directly from my account without consulting employeer as I have already reached the limit of 10% of basic ?
Please help me regarding this .
Hello,
I did transaction in NPS on 30 March and my unit got purchased on 4th april.
Am i able to have tax benefit on this amount.
As on transaction detail of month march i am not seeing contribution done on 30th march.
Even I did transaction on 30th March but it is showing 30th march only as the transaction date.
i made transaction from enps site .. and by using SBI online..
have you done the same…
Actually i have received one male from cra which says statement of account for march and in that statement i am not seeing that entry .. are you able to see your entry there
I did transaction on eNPS using IDBI netbanking. Today I recieved monthly transaction statement on my email ID and I can see my entry. Try to see your holding statement at https://cra-nsdl.com/CRA/
and log in using your PRAN no. If you do not have password “Ipin”, you can generate online using forget password option. Then try to see holding statement online.
If I have a basic salary of 25K per month i.e. 3 Lac per annum, then can I claim a tax exemption of 50K under section 80CCD(1b)? Is the contribution under this section also capped by the formula ‘10% of Basic + DA’ (which is 30K in my case)?
Can you explain ‘Exit’ in layman’s language? I just couldn’t get words like annuity and all. What exactly will happen at the retirement?
Or, what can I get if I decide to get before retirement?