NPS Tax Benefits – Sec.80CCD(1), 80CCD(2) and 80CCD(1B), Have you availed all of them?

 

National Pension System (NPS) is a voluntary retirement savings scheme that was launched by the Government of India in 2004. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and offers a range of tax benefits to its subscribers. In this article, we will discuss the tax benefits available under different sections of the Income Tax Act for NPS subscribers.

NPS Tax Benefits under Sec.80CCD(1): 

Section 80CCD(1) of the Income Tax Act allows for a deduction of up to 10% of the employee's salary (for salaried individuals) or 20% of gross total income (for self-employed individuals) in a financial year, subject to a maximum limit of Rs. 1.5 lakh. The deduction can be claimed by both salaried and self-employed individuals who have invested in the NPS.

Category	Tax Benefit	Maximum Limit
Salaried Individuals	10% of salary	Up to Rs. 1.5 lakh
Self-employed Individuals	20% of gross total income	Up to Rs. 1.5 lakh

NPS Tax Benefits under Sec.80CCD(2): 

Section 80CCD (2) applies to only salaried individuals who are contributing to the NPS under the employer-employee contribution model and not to self-employed individuals. A maximum deduction of 14% of their salary (basic + DA) contributed by the Central Government or State Government towards NPS. A maximum deduction of 10% of their salary (basic + DA) contributed by any other employer towards NPS. The employer's contribution to the NPS is also eligible for tax benefits under this section.

Category	Tax Benefit	Maximum Limit
Salaried Individuals	10% of salary	Up to Rs. 1.5 lakh
Employer Contribution	14% of salary	Up to Rs. 1.5 lakh

NPS Tax Benefits under Sec.80CCD(1B):

Section 80CCD(1B) of the Income Tax Act allows for an additional deduction of up to Rs. 50,000 in a financial year, over and above the deduction available under Section 80CCD(1). This deduction is available to all NPS subscribers, including salaried and self-employed individuals.

Category	Tax Benefit	Maximum Limit
All NPS Subscribers	Rs. 50,000

Benefits of NPS Tax Benefits: 

The tax benefits available under the NPS can help individuals save a significant amount of money on their tax liabilities. The deductions available under Section 80CCD(1) can be claimed by both salaried and self-employed individuals, while the deductions under Section 80CCD(2) are available only to salaried individuals contributing to the NPS under the employer-employee contribution model.

The additional deduction of Rs. 50,000 available under Section 80CCD(1B) can help individuals save even more on their tax liabilities. This deduction is available to all NPS subscribers, regardless of their employment status.

Conclusion: 

The NPS is a great retirement savings scheme that offers a range of tax benefits to its subscribers. The deductions available under Sections 80CCD(1), 80CCD(2), and 80CCD(1B) can help individuals save a significant amount of money on their tax liabilities. Salaried individuals can also benefit from the employer's contribution to the NPS, which is eligible for tax benefits under Section 80CCD(2). It is important to note that the maximum limit for all the deductions under these sections is Rs. 1.5 lakh, except for the additional deduction of Rs. 50,000 available under Section 80CCD(1B).