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,
while submitting tax return what document to be kept for nps proof ,50000 tax benefit.I already took NPS last year
Dear Sir
I am 49 Year, Holding LIC JEEVAN NIDHI Pension policy .
Will above policy cover under NPS,
I had already invest 1.5L-80C /13000 – 80D
Dear Shiv,
Could you please describe the details about u/s80ccd(2) & u/s80cce for NPS.
Also please describe the new ‘Asset Class A’.
Sir, I want to deposit 50, 000 in enps tier I to get rebate under 80ccd. During contribution via enps Voluntary option and tier II are displayed . Is contribution in voluntary and tier I the same as Tier I is not displayed.
I am 60 years old, can I invest in 80ccd (1B) ?
I am a state govt. employee having GPF account. I have joined my service in March 1991. Now can i invest Rs. 50,000/- in NPS account to get IT relief through 80 ccd 1(b) after my investment of Rs. 1.5 lac in 80C .
I want to invest 25000 this year and 35000 next year, then 20000 next year. Is it possible for NPS SCHEME.
Can we avail tax benefit under section 80CCD, if the account / registration/ investment is opened in the name of wife/spouse.
my question is RS 12500 deduct GPF from my salary , i can invest 50000 in NPS and that amount i can claim in income tax rebate
I do have an NPS account for which the employer is contributing for NPS (i.e., 10% of Basic) under 80CCD(2) Employer NPS. Am I eligible for additional Rs. 50,000/- under Sec80CCD (Deductions under Chapter VI-A). If so, how do I contribute into my current NPS a/c to get the income tax benefit for the additional Rs. 50,000/- contribution under Sec80CCD. Thanks
While creating NPS accont online thru e-NPS and at the time of first contribution – online payment link got failed and it could not be succeed first contribution. Then it was retried thru Registration but unable to do the same as registration process was over, but PRAN number could not be generated.
Pl suggest what to do for making first contribution and generating PRAN number ?
I am bit confused , please clarify, if I had invested under section 80C of income tax rebate schemes of other than NPS(tier-1) like LIC, PPF, ELSS,SSA etc. and Rs. 150000/- investment is already completed then on 1st contribution of Rs. 50000/- in NPS tier-1 account; whether I would be eligible additional tax rebate for Rs.50000/-.??
please advice
Sir,
I have deposited 50000 in her NPS from my bank account. Who is entitled for deduction? Myself / Wife / or any one of us.
sir I m a central government employee and not covered under nps. now i started investing in nps at my own in tier i. will i be eligible for additional deduction of Rs. 50000 under 80 CCiB
I have invest 666665Rs in LIC pension last year after retirement 60year . I am getting pensionRs5000/month. Pension money can be calculate in income? If yes how much can be exampted &in which code. Post pension also I am getting RS6300 /month . so please advise me.
i shall be 60 years old in Feb.2017.Ihave opened my NPS tier 1 account in January 2016 and deposited 50000 rupees and have claimed tax benefit under 80 CCD(1b)for financial year 2015-16 and again depositd 50000 rupees in August 2016 for claiming tax benefit under 80CCD(1b) for Financial year 2016-17. My NPS accont will mature in Feb2017 as i will be 60 years old in Feb. 2017.
My Question-
1- My date of retirement from service is on Feb 2022 after achieving 65 Years
age. My NPS account will mature in Feb 2017 as mentioned above while my
retirement is Feb2022. Will i be eligible for 40% Tax exemp on NPS corpus withdrawl from on closure 0f my NPS account in Feb 2017 as i will become 60 years old. I have opened the account under All citizen- non government account. Please Reply
Hello Sir,
I have a question… Assume below case :
My 80 C Investment = 1,50,000 ;
Thus, Tax Deduction under 80C (including 80CCD (1)) = 1,50,000.
My 80 CCD(1B) NPS Investment = 80,000 ;
Thus Tax Deduction under 80 CCD(1B) = 50,000.
What is Tax implication to the remaining Rs 30,000 in NPS ?
Are the returns on that Rs.30,000 taxable. Or it remains invested in the account and Tax is Applicable at the Time of Corpus Withdrawal (Pre-Retirement or Post-Retirement).
Pl. Clarify.
KVP
Hello sir,
I am working in Judicial Department in Gujarat, and now i have been selected in the U.P. services, will i be required to close my current NPS account which i just opened 7 months back. Additionally, I invest in PPF account to the tune of 1.5 Lakhs, what is the additional tax benefit that i am entitled to through NPS investment.
thank you.
Please help to clarify taxation on withdrawl of Tier 2 corpus.
Also clarify if there is any lock-in in tier 2.
Dear shiv,
Thanks for the informative article. However, still not clear on one aspect:
My employer deducted 10% of basic salary every month and deposited with NPS. In addition, I deposited Rs 50,000 to NPS which is eligible for 80 CCD (1) and 80 CCD(1B). However, please tell me under what head do I claim benefit for 10% of salary deduction which my employer deposited with NPS every month. Please note that this is part of my CTC and hence my contribution and not employer’s contribution. Can I claim this under 80CCD(2) – Employer Contribution in NPS? Thanks in advance.