Income Tax News: Big Bachat! NPS Can Help You Save 2 Lakhs in Taxes, Check How

Income Tax News: Taxpayers, whether employed and earning a salary or engaged as self-employed individuals, can significantly optimize their income tax liability by strategically leveraging the National Pension System (NPS). This tax-efficient investment avenue offers compelling benefits for both salaried and self-employed individuals, aligning with both old and new income tax regimes in India.

NPS Tax Deductions under Section 80CCD (1)

Under Section 80CCD (1) of the Income-tax Act, contributors to NPS can claim deductions from their gross total income. For salaried individuals, the deduction is capped at 10% of their salary (Basic + DA), while self-employed taxpayers can claim up to 20% of their gross total income. The maximum ceiling for this deduction is Rs 1.5 lakh in a financial year, falling within the overall limit of Rs 1.5 lakh under Section 80 CCE.

Additional Deduction with Section 80CCD (1B)

Section 80CCD (1B) provides an extra deduction of up to Rs 50,000 for NPS contributions. This supplementary benefit is in addition to the Rs 1.5 lakh limit under Section 80CCD (1), presenting a valuable tax-saving opportunity for both salaried and self-employed taxpayers.

Employer's Contribution Benefits with Section 80CCD (2)

Section 80CCD (2) focuses on the employer's contribution to the employee's NPS account, applicable only to salaried taxpayers. The deduction is subject to specific limits, with the maximum employer's contribution capped at Rs 7.5 lakh. This includes contributions towards EPF and superannuation funds.

Tax Benefits for Salaried and Self-Employed Individuals under Different Regimes

• Salaried taxpayers can avail a tax benefit of up to Rs 2 lakh under Section 80CCD (1) and Section 80CCD (1B). Additional deductions under Section 80CCD (2) are also available based on specified conditions.
• Self-employed taxpayers can claim a tax deduction of Rs 1.5 lakh under Section 80CCD (1), with an extra deduction of Rs 50,000 under Section 80CCD (1B). This allows self-employed individuals to maximize their tax benefit to Rs 2 lakh through NPS investments.

Choosing Between Old and New Income Tax Regimes

• Opting for the old tax regime allows taxpayers to claim deductions under Section 80CCD (1), Section 80CCD (2), and Section 80CCD (1B).
• Under the new income tax regime, deductions under Section 80CCD (1) and Section 80CCD (1B) are unavailable. However, deductions for contributions to NPS under Section 80CCD (2) can still be claimed.

Potential Returns from NPS Investments

NPS offers variable returns dependent on the chosen plan, comprising Equity, Corporate Debt, Government Bonds, and Alternative Investment Funds. Investors can tailor their asset allocation based on risk tolerance and financial goals, influencing potential returns over the long term.

By understanding and strategically leveraging the tax benefits associated with NPS, individuals can not only save on income tax but also build a robust retirement corpus. Consider consulting with financial experts to optimize your NPS strategy and maximize tax savings.

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