Unmatched Tax Benefits of Investing in NPS

An impending challenge employees or workers may face in India, is the risk of inadequate pension arrangements after retirement from work. As a fallout, individuals may either be required to put severe curbs on their post-retiral expenses or continue working beyond the retirement age. Therefore, it is essential that one should take early and active steps towards planning, saving and investing for retirement.

Towards this, National Pension System (NPS) offers multiple benefits of systematic retirement planning, creating a pension corpus alongwith tax benefits. NPS is one of the most customer friendly and flexible pension plan in today’s time. It is a Regulated, Professionally managed, Low cost, Transparent and a Portable pension plan well suited for any individual.

Here are some of the compelling reasons to opt for NPS :

Tax benefits on investment of Rs 1.5 lakhs u/s 80C – NPS is one of the listed investment options which is eligible for deductions u/s 80C. The total deduction limit u/s 80C is Rs 1.50 lakhs and the amount contributed towards NPS can be claimed as a deduction subject to a ceiling of 10% of salary (20% of gross income for non-salaried).

Tax benefits on additional investment of Rs 50,000 u/s 80CCD (1B)- This additional tax benefit is exclusively available to NPS subscribers to claim tax deductions upto Rs 50,000 over and above the deduction u/s 80C. Effectively this translates into a total deduction of Rs.2.00 lakh for NPS subscribers i.e. Rs.1.50 lakh u/s 80C & Rs.50,000 u/s 80CCD (1B).

Tax benefits under Section 80CCD(2) – If an Employer contributes towards NPS Account of an employee (subscriber), the employee can avail deductions u/s 80 CCD(2) in addition to the tax benefits available u/s Sec. 80C, subject to a ceiling of 10% of salary or Rs 7.50 lakh.

Tax benefits on returns and maturity amount – NPS belongs to a covetous category of financial products which offers a tax treatment of EEE- exempt-exempt-exempt. Not only on investment but the returns and maturity proceeds of NPS are effectively tax exempt. This EEE tax treatment is available only to a selected few financial products.

Low-cost product – NPS is the lowest cost pension scheme in the world. The compounding effect achieved through regular investment and low cost advantage provides an opportunity to accumulate a higher pension corpus during the working life.

In conclusion, it can be said that investing in NPS helps reduce one’s taxable income apart from building a pension corpus for post-retirement life. Investing in NPS is easy and a subscriber has flexibility to contribute any amount above Rs 500 anytime and there are no restrictions on the number of transactions one can undertake during a year.