How can you plan your taxes with NPS? What are its benefits? 

Tax planning is an essential part for Indian taxpayers, as they consider savings and investments an important part of their overall financial and retirement planning. Tax planning can be a significant way to reduce tax liability by making prudent investment decisions. While planning for your golden years and considering ways to reduce your tax burden, the NPS (National Pension System) can play a significant role. And in this blog, we’ll find out how? 

National Pension System – The Sole Purpose 

The primary objective of the National Pension System is to provide financial stability to its subscribers during their retirement years, while offering one of the most attractive tax-saving investment options. How can NPS tax-saving benefits help you build your retirement corpus? Let’s have a look. 

NPS – Tax Saving Benefits 

• Tax benefit under NPS Tier I Account:  NPS subscribers can get up to ₹1.5 lakh tax deduction under Income Tax Section 80(C). There’s an additional tax benefit of ₹50,000 under Section 80CCD(1B) of the Income Tax Act, which is over and above Section 80(C). So, in totality, one can save up to ₹2 lakh while investing in NPS. 
• NPS Tax benefit on Returns: The returns of the NPS Tier I account are tax-exempt until maturity. This means that all market-linked returns generated during the investment period are not taxed, making the contributions grow without paying annual taxes. 
• NPS Tax Benefit on Partial Withdrawal: Partial withdrawals in the NPS Tier I account for specific purposes like critical illness, higher education or buying a home are tax-free if they meet the PFRDA requirements.
• NPS Tax Benefits on Lumpsum Withdrawal: NPS subscribers can withdraw up to 60% of the accumulated corpus. This is tax-free. It won’t put you under pressure to pay tax on your corpus that you have been saving for over the years.
  

Several Other Benefits of NPS

• Potential for High Returns: NPS invests in market-linked securities, which gives NPS an advantage over other traditional retirement saving schemes. 
• Regulated: To maintain the transparency of NPS, it is regulated by the Pension Fund Regulatory and Development Authority, a government entity. This creates trust among its subscribers.  
• Low-cost Retirement Plan: Any Indian citizen between the ages of 18 and 70 can invest in NPS, and to open an NPS Tier I account, they only require ₹1000. This makes NPS an affordable retirement option. 
• Portable: Any change in job or location doesn’t impact your savings, contribution, or compounding rate. You can keep investing in a job from wherever you want.
• Flexible: An NPS subscriber can choose between active and auto mode. Either you can choose the distribution of your asset classes, or you can leave it to the active mode so that it can make the necessary changes as per market conditions. 

Final Thoughts

The National Pension System (NPS) comes with several tax benefits, making it one of the most appealing retirement savings options in the market. Subscribers can avail tax deductions of up to ₹2 lakh under various income tax sections, which further enhances its popularity as a preferred retirement plan.