NPS for Tax Saving: The month of March is about to end, as well as the last date for filing income tax return is also coming closer. In such a situation, if you have not yet filed your income tax return , then fill it in time. Today we are going to tell you about the option for tax saving .
If your salary is 9 lakhs or more and you have used tax saving deductions like section 80C, 80D and 80TTA. But still not able to reduce your tax liability. So investing in National Pension System i.e. NPS can prove to be beneficial for you. But, this is subject to certain conditions.
NPS is a great option for tax saving . In this, you can invest more than Rs 2 lakh in a financial year. This also reduces your tax. Come, let us know how you can use it to save.
This much tax deduction is available for investing in NPS
Before investing, let us know how tax deduction is available for investing in NPS. Deduction can be claimed under three sections of Income Tax Law for the amount invested in NPS.
- Section 80CCD (1): This deduction comes under 80C. The maximum investment limit in this is Rs 1.5 lakh. You can invest up to 10% of basic salary or up to Rs 1.5 lakh, whichever is less.
- Section 80CCD(1b): Extra tax deduction up to Rs 50,000 is available in this. This exemption is available separately under section 80C.
- Section 80CCD (2): Deduction is available on the company’s contribution to the employee’s Tier-1 NPS account. It can be 10% (14% in case of central employees) of basic salary. This deduction is also available in the new income tax slab.
How does section 80CCD(2) help in tax saving?
After using section 80CCD (1) and section 80CCD (1B), you can save tax through section 80CCD (2). At present, tax deduction is available on the contribution of the company to the NPS account of the employee. In this, you can claim a maximum deduction of up to 10% of the salary. It gives 14% deduction for government employees.
Understand this through example, suppose your annual basic salary is Rs 9 lakh. Your company contributes Rs 80,000 to Tier-1 NPS account. In this case, you can claim a tax deduction of 10% of your basic salary i.e. Rs 80,000.
If your company contributes Rs 90,000 to the NPS account, then in the case of the Central Government, if the organization contributes more than 14% of the salary to the NPS account, it will be taxable in the hands of the employee.
Apart from this, from the financial year 2020-21, the company’s contribution to NPS, Provident Fund and Retirement Fund from Rs 7.5 lakh in a year will be taxable in the hands of the employee.
Understand calculation like this
Understand this whole calculation in such a way that if the company makes 10% contribution in NPS, then you can take the benefit of total deduction up to Rs 9.5 lakh under section 80CCD (1), 80CCD (1B) and 80CCD (2). It will depend on your basic salary.
Where as a person with a monthly basic salary of Rs 50,000 can get a total deduction of Rs 2.6 lakh (Rs 60,000 under section 80CCD(2)). On the other hand, if the basic salary is Rs 6.25 lakh or more, a maximum deduction of Rs 9.5 lakh (Rs 7.5 lakh under section 80CCD (2)) can be availed under NPS only.