Does NPS investments fall under Section 80C?
National Pension Scheme (NPS) has been the buzzword of discussions off late. Lot of our readers wrote to us wanting to understand if there are any additional tax benefits of NPS over and above what Section 80C has to offer?
Answer : 011
There are a number of options that people use today to save for their
pension needs, for example Employee Provident Fund (EPF), Voluntary Provident Fund (VPF) and Public Provident Fund (PPF). Employees also benefit
from various schemes from their employers like the superannuation, and
also various annuity
products available in the market.
Some of the products
like PPF or EPF and other pension plans are
already covered under Section 80C where the maximum investment that will
gain tax
benefit is Rs 1.5 Lacs (as per the 2014 Budget). Section 80C is already
so overcrowded that those who have an investible surplus are already
over invested here.
Here comes NPS (National Pension Scheme) scheme from the
government and there is a lot of confusion whether the invested
principle amount would also add to this over crowd of NPS?
For a
clarity on this, we must understand that there are two ways one can
contribute to the NPS - one as an individual contributor, and the other,
as a Corporate contributor.
As an individual contributor
Any employee can start contributing to NPS as an individual contributor. But please note that as an individual, your contribution will fall under Section 80C limit of
Rs 1.5 Lacs.
As a corporate contributor
NPS
investment, if done through an employer(corporate
NPS) will enjoy tax benefit of up to 10% of the basic and is available
in addition to the Rs 1.5 Lacs benefit under Section 80C. This means
that an additional money (up to a maximum of 10% of your Basic salary) becomes non taxable at the time of investment. This rebate falls under Section 80CCD of the Income Tax act.
For
this to happen, your employer must re-structure your salary package to
take the NPS contribution under a separate head. You may need to connect
with the HR / payroll division of your employer to see if this is
feasible.
A word of caution, however, is that the
withdrawal from NPS is fully taxable. You can read more about the NPS
and some of its demerits by clicking here.
Related Posts:
- What is PRAN Number
- Is investing in NPS useful?
- See what people say when they move from the rat race to financial freedom
- Learn how to pursue Financial Freedom
- What are taxation regimes - EEE, EET, ETE, ETT
- Read what readers of the book have been saying.
- 5 Year Tax Saving FD under Section 80C
- All about income tax
Cheers
Manoj Arora
Freedom can buy you....what money cannot !!
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