What Is The NPS Tax | NPS Tax Benefit | National Pension Scheme Tax Exemption | NPS Tax Rules | NPS Tax Benefit Calculator
The Pension Fund Regulatory and Development Authority (PFRDA) oversees the New Pension Scheme (NPS). NPS is a market-linked product, which means it pays out based on the success of the fund. NPS was first implemented in 2014 and was first targeted at government employees before being expanded to all residents in 2009. Read below to check the detailed information related to NPS Tax Benefit 2022-23 like Eligibility Criteria, NPS Tax Benefit 2022-23, Various Tax Deductions for Tier 1 Account, and much more.
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NPS Tax Benefit 2022-23 – Comprehensive Details
NPS not only assists you in planning for your retirement but also lets you save money on taxes. National Pension Scheme can help you save money on taxes whether you’re in the 80C tax bracket or not. Furthermore, whether you are self-employed or employed by a corporation, NPS provides exclusive tax benefits above and beyond the 80C limit for both. Furthermore, if your 80C limit has not been reached, you can still invest in NPS to take advantage of the tax benefits.
Top Banks for NPS in India
NPS is mostly a voluntary program with the primary goal of providing a pension after retirement. There are other ways to invest in NPS, but the three most common are Central Government Scheme, State Government Scheme, and Swavalamban Scheme. You can also invest in NPS through one of the country’s top seven banks:
|Bank Name||Scheme Name|
|SBI||SBI Pension Fund|
|HDFC||HDFC Pension Fund|
|ICICI||ICICI Pension Fund|
|UTI||UTI Pension Fund|
|Reliance||Reliance Pension Fund|
|LIC||LIC Pension Fund|
|Kotak||Kotak Pension Fund|
Eligibility for the NPS Scheme
- Unlike other pension programs, the NPS allows Indian citizens as well as NRIs (non-resident Indians) to participate.
- When applying, however, the applicant must be between the ages of 18 and 60.
- Aside from that, subscribers must provide their KYC documents to complete the subscriber registration forms (CS-S1 and CS-S2).
NPS Tax Benefit 2022-23
On the employee’s and employer’s contributions to the National Pension System, a tax exemption of Rs.1.5 lakh can be claimed (NPS). Sections 80CCD (1), 80CCD (2), and 80CCD (1B) of the Income Tax Act can be used to claim tax benefits.
- 80CCD (1): Self-contribution is covered by Section 80CCD (1), which is part of Section 80C. Salaried employees can deduct up to ten percent of their pay, while self-employed people can deduct up to twenty percent of their gross income.
- 80CCD (2): The employer’s contribution to NPS is covered by Section 80CCD (2), which is also a part of Section 80C. Self-employed people are not eligible for this benefit. Either the employer’s NPS contribution or 10% of basic pay + Dearness Allowance is the maximum amount that can be deducted by an individual (DA).
- 80CCD (1B): Individuals can claim an additional Rs.50, 000 as NPS tax benefit under Section 80CCD (1B) for any other self-contributions.
Tax Benefits & NPS Tier I Account
A tier-I account under the new pension system is eligible for numerous tax incentives because it is primarily intended to provide post-retirement benefits to the investor and does not allow withdrawals. A Tier-II account, on the other hand, does not allow withdrawals and does not provide tax benefits. You can use the NPS calculator to assess your scheme balance.
Various Tax Deductions for Tier 1 Account
The Various Tax Deductions for Tier 1 Accounts are as follows:
- Section 80CCD (1) allows for a deduction of Rs.1,50,000 (section 80C) The deduction that can be claimed must be at least 10% of gross income (in the case of a self-employed taxpayer) or 10% of salary (in the case of an employee taxpayer) or Rs.1,50,000.
- Section 80CCD (1b) allows for a deduction of Rs. 50,000 (budget 2015 offers additional tax benefits under section 80CCD of the Income Tax Act, 1961). As a result, investors can get a tax benefit of up to Rs. 2 lakhs.
- Section 80CCD allows you to deduct 10% of your basic pay plus a dearness allowance (2). The contribution of an employer can be deducted from business revenue under section 36 I (IV). The minimum deduction claimed should not exceed 10% of the pay, but there is no upper restriction on the maximum amount. As a result, the deduction available under section 80CCD (2) is in addition to the Rs. 1, 50,000 available under sections 80C and 80CCD (1).
The EET System and the New Pension Scheme
The new pension scheme is classified as an EET (exempt-exempt-tax) system, in which contributions are tax-deductible, withdrawals are completely taxable, and returns are tax-free.
Tax Deductions Provided by NPS
NPS provides the following tax benefits:
|Mandatory deduction from salary towards retirement||Rs.1.5 lakh||80CCD (1)|
|Employer’s voluntary contribution to the NPS||10% of the basic salary||80CCD (2)|
|Employer contribution to NPS voluntarily||Rs.50,000||80CCD (1b)|
Other Tax Deduction by NPS
Nirmala Sitharaman, the Finance Minister, announced an additional income tax deduction of Rs.50, 000 for NPS contributions under Section 80CCD. Here are some points to keep in mind about the other deduction:
- Tax savings: The extra deduction of Rs.50, 000 on NPS is beneficial for individuals with the highest tax rate of 30%, who can save an additional Rs.16,000 in taxes. Employees in the 20% tax bracket can save more than Rs.10, 000, while those in the 10% tax band can save only Rs.5, 000.
- Tax on withdrawals: The tax reductions on NPS withdrawals have not been extended. As a result, up to Rs.1.5 lakh in NPS contributions and interest received are tax-free, but the amount withdrawn is taxable.
- Opting out of EPS: Employees will be able to opt-out of EPF and invest in NPS for retirement, according to the Finance Minister’s proposals
- Opening an NPS account: To provide NPA-related services, most banks are registered with PFRDA (Pension Fund Regulatory and Development Authority). An NPS account can be opened by anyone between the ages of 18 and 60. The current value of the fund, as well as other transactions, can be viewed online.
- Extra tax-saving options: The extra Rs.50, 000 deduction on NPS will bring the total deduction under Sections 80C and 80CCD of the Income Tax Act to up to Rs.2 lakh. The cap for the 80CCD deduction, which includes NPS contributions, has been raised from Rs.1 lakh to Rs.1.5 lakh. This, in turn, is likely to provide investors with more tax-saving options.
- Withdrawal options: Subscribers who reach the age of 60 can drop out of the NPS (all except government employees). An annuity for the subscriber’s monthly pension must be purchased with at least 40% of the accumulated pension asset. The remaining balance is paid in one lump sum. When a subscriber leaves the NPS, the annuity service providers are responsible for providing a regular monthly pension.
- Minimum deposit: A Tier-I account requires a minimum deposit of Rs. 6,000, with a minimum contribution of Rs. 500 in one deposit.
- NPS account structure: The NPS scheme is divided into two accounts: Tier I and Tier II.
- Tier I: This is a non-withdrawable retirement account. Any contributions made to this account are tax-deductible.
- Tier II: This is a voluntary withdrawal account that can only be opened by people who already hold a Tier I account. The subscriber can also make withdrawals from his or her account as needed. It functions similarly to a bank savings account.
Difference between NPS Tier 1 and NPS Tier 2
The following table summarizes the key distinctions between Tier 1 and Tier 2 NPS accounts:
|Features||Tier 1||Tier 2|
|Is it necessary to invest in NPS?||Yes||No|
|Eligibility to open an account||Any resident Indian citizen or NRI||Tier 1 members|
|Is there any way to get money out of it||Yes, however, it has certain conditions||At any point in time|
|Is having a bank account necessary?||No||Yes|
|Minimum number of contributions per year||1||1|
|Annual minimum contribution||Rs.6,000||Rs.1,000 at the time of opening of account|
|Minimum contribution amount||Rs.500||Rs.250|
|What is the required minimum balance in the account?||NA||Rs.2,000|
|investment style||Same for both|
|Fund Management Charges||Same for both|
|Is it feasible to move money from Tier 1 to Tier 2 and back?||No, transfer of funds from Tier 1 to Tier 2 is not possible||Yes, funds can be transferred from Tier 2 to Tier 1|
|Charges||Annual maintenance charges – Paid by the employer, if NPS is opened through an employer||Activation and Transaction charges – To be paid by the subscriber|
|Tax benefits during the investment||Employees are eligible for up to 10% of basic + DA, while self-employed eligible for up to 10% of gross income – Deduction under Section 80CCD (1), which is part of 80C, therefore limit is Rs.1,50,000 only Employer contribution – up to 10% of basic + DA Over and above 80C, additions Rs.50,000 can be availed under Section 80CCD (1b)||No tax benefits|
|Any taxation on yearly earnings?||Not taxable|
|What are the tax benefits at maturity?||60% lump sum that is withdrawn at retirement is taxable in that year. 40% corpus under annuity is taxed yearly as per the individual’s IT slab|
If you are already a subscriber, you can go to any POP-SP or go to the eNPS website (https://enps.nsdl.com) to make an additional payment to your Tier I account.
If you can get a reduced marginal tax rate when you withdraw at retirement, investing the extra Rs. 50,000 is a good option. As a result, the benefit is determined by the marginal tax rate.
In addition to the Rs.1.5 lakh, you can now claim an extra tax credit of Rs.50,000 under Section 80CCE. As a result, in a fiscal year, a total tax advantage of Rs.2 lakh can be claimed through NPS.