Chartered Accountant

1. With a view to promote social security measures and to provide the citizens with pension support, National Pension scheme was originally introduced for the Government employees long back in 2004. The scope of scheme was later on extended in 2009 so as to cover the private sector employee. And now, the benefit of the scheme has been extended so as to include self employed citizens also.
2. Being a new product, many taxpayers are not aware of NPS as a tax saving tool. NPS is a voluntary pension scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA).  Any citizens of India between 18 - 60 years of age, whether resident or non-resident, are eligible to subscribe NPS. With fund management charge of mere 0.25% p.a., NPS is cheapest market linked online financial product. Being a low cost portable & transparent pension system, it has been able to garner more than 1 lakh crore in the FY 2015-16
3. Section 80CCD(1B) in the Income Tax Act-1961 offers an additional deduction of Rs. 50,000/- to the taxpayer for contribution in the National Pension Scheme (NPS).  The deduction is over and above the deduction of Rs. 1.50 Lacs available u/s 80C for contribution in LIC/PPF/NSC etc. Deduction of Rs 50,000/- under 80CCD (1B) is exclusively for investments in NPS and cannot be availed against any other investment.
4. Tax Benefit:
   Tax benefit is one of the key consideration for arriving at an investment decision.
   NPS tax benefits are available through 3 sections – 80CCD(1), 80CCD(2) and 80CCD(1B), as under:

1. Employee Contribution is eligible for deduction u/s 80CCD (1) subject to overall maximum cap of Rs. 1.50 Lacs available u/s 80C. [Deduction u/s 80C, 80CCC & 80CCD(1) taken together cannot exceed Rs. 1.50 Lakh: Section 80CCE]
2. Employer Contribution is also allowed as deduction in the computation of total income of the employee to the extent that it does not exceed 10% of employee’s salary. Deduction of employer contribution is available over & above the deduction of Rs. Rs. 1.50 Lacs as mentioned in (1) above [Section 80CCD(2)].
3. Self Employed and others:
   In addition to deduction as mentioned in (a) & (b) above, an additional deduction of Rs. 50,000/- is also provided u/s 80CCD (1B) for contribution in NPS. It is over and above & is in addition to deduction u/s 80C. Deduction from income simply means that, higher the tax bracket- higher the benefit, lower the tax bracket- lower is the benefit. But benefit is there if an individual has taxable income. For example, an individual in the 30% tax bracket could save tax of Rs. 15,450/- whereas those in 20% & 10% tax bracket would be able to save tax of Rs. 10,300/- & Rs. 5,150/- of the tax amount respectively.