The National Pension Scheme (NPS) is a voluntary, long-term investment retirement savings scheme, initiated by the Government of India, to provide financial security to the citizens of India after their retirement. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is available to all Indian citizens aged between 18 and 65 years.
Under the NPS, subscribers can contribute a certain amount of money regularly towards their retirement corpus. The scheme offers two types of accounts to the subscribers: Tier-I and Tier-II. The Tier-I account is mandatory for all subscribers, and the contributions made to this account are subject to certain restrictions and withdrawal rules. The Tier-II account, on the other hand, is optional and offers more flexibility in terms of withdrawal rules.
Here are some of the tax benefits of the National Pension Scheme (NPS):
- Tax Deduction: Subscribers of the NPS are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. Additionally, they can claim an additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B) of the Income Tax Act, 1961, which is over and above the Rs. 1.5 lakh limit under Section 80C. Therefore, a taxpayer can claim a total tax deduction of up to Rs. 2 lakhs by investing in the NPS.
- Tax Exemption on Withdrawals: The National Pension Scheme offers tax exemption on withdrawals up to 60% of the accumulated corpus. This means that subscribers can withdraw up to 60% of their accumulated corpus at the time of retirement, which will be tax-free. The remaining 40% of the corpus must be used to purchase an annuity, which is taxable as per the subscriber’s tax slab.
- Tax Exemption on Annuity Income: The annuity income that is received by the subscriber after retirement is taxable as per the subscriber’s tax slab. However, the government has provided a tax exemption on up to 40% of the annuity income received by the subscriber.
- No Tax on Transfers: The National Pension Scheme allows subscribers to transfer their accumulated corpus from one NPS account to another without attracting any tax liabilities.
In conclusion, the National Pension Scheme offers various tax benefits to its subscribers, such as tax deduction on contributions, tax exemption on withdrawals, tax exemption on annuity income, and no tax on transfers. Therefore, it is a popular retirement savings option for individuals who want to save for their future and reduce their tax liabilities at the same time.
