TAX BENEFIT IN NPS
The tax benefit in NPS will be available only in case of Tier I account, but not for Tier II account.
- Employer contribution to the NPS on behalf of an employee will get a deduction from his income (i.e. employer’s income) an amount equivalent to the amount contributed or 10% of BASIC SALARY + DA of the employee, whichever is less. (Section 36 (1) (iv a) of the Income Tax Act 1961).
- Employer’s contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees. However, it is deductible u/s 80CCD (2) of the IT Act, 1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1.5 lac u/s 80 CCD (1). This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD (2) of the IT Act, 1961.
- Contribution by an individual employee is eligible for a deduction from Income under Section 80CCD (1) of the IT Act 1961 up to Rs 1.5 Lakhs. However, investments under Section 80C Section 80CCC and 80CCD(1) should not exceed Rs.1.5 lakhs per assessment year to claim the deduction.
- An additional tax benefit of Rs.50000/- under section 80CCD (1B) per year (applicable from FY 2015-16/AY 2016-17) for NPS investments.
New benefits for NPS Subscribers in Union Budget 2017-18.
- Tax-exemption to partial withdrawal from National Pension System (NPS)
- The existing provision of section 10(12A)of the Income Tax Act, 1961 provides that payment from National Pension System (NPS) to a subscriber on the closure of his account or opting out shall be exempt up to 40% of the total corpus at the time of withdrawal. The amount utilized for the purchase of an annuity is also tax exempt. At the time of normal exit, 40% of the total corpus is mandatorily required to be purchased for an annuity. The subscriber has the option to use the higher amount of purchase of an annuity.
- In order to provide further relief to the subscriber of NPS, it has been proposed to insert a new clause (12B) in section 10 of Income Tax Act, 1961 to provide exemption on partial withdrawal not exceeding 25% of the contribution made by an employee in accordance with the terms and conditions specified under Pension Fund Regulatory and Development Authority Act, 2013 and regulations made thereunder.
- This benefit will be effective on partial withdrawal made by the subscriber after 1st April 2017.