Are you unsure of the benefits of investing in the NPS plan? NPS offers a variety of advantages, including being an inexpensive pension and investment tool. It provides safe long-term returns and sizable income after retirement in addition to being important and helpful for retirement planning. NPS or National Pension Scheme can be a good option for those who are looking to save taxes and simultaneously planning about their retirement. Many salaried and corporate employees consider NPS as a tax saving option.
Benefits of National Pension Scheme
Now let’s discuss the benefits of NPS as a tax-saving option.
The following are some additional benefits of NPS:
- Where they invest is entirely up to the investor.
- Investments under NPS are managed by qualified pension fund managers.
- The monthly contribution amount can be set by the account holder.
- You can manage your NPS account anywhere in India
- NPS comes with tax advantage benefits
Now, let’s discuss in detail why NPS is a good tax-saving option, you may want to choose.
Tax benefits under Section 80C
One of the investment options that is listed where you can invest and save on taxes under Section 80C is NPS. The maximum deduction allowed under this section is ₹1.5 lakhs, and if you want to claim the deduction, you can invest the entire sum in NPS.
Tax benefits under Section 80CCD (1B)
This additional tax break is only available to NPS investors for Tier I accounts. You may deduct up to ₹50,000 in taxes from your investments under this section. This is in addition to the deduction you are allowed to make under Section 80C.
So, by investing in NPS, you can claim a tax deduction of up to ₹2 lakh (₹1.5 lakh under Section 80C and another ₹50,000 under Section 80CCD) (1B). This implies that you can save ₹62,400 in taxes if you are in the 30% tax bracket.
Tax benefits under Section 80CCD(2)
This benefit is available based on employer contributions, so it is intended for those who are employed and not self-employed. People working in the private sector are limited to 10% of their pay. You can opt for the corporate NPS model where up to 10% of your basic salary can be contributed to your basic salary can be contributed to your NPS account directly by the employer and you can claim tax deduction on the same under 80CCD (2) with a limit of ₹7.5 lakhs.
NPS with its tax benefits can help you reduce your taxable income by quite a bit. However, it is appropriate for you to invest in NPS as a tax saving option. It is a great product to build a corpus for your retirement thanks to its low cost and flexibility. So invest for the right reason.
Disclaimer – This article is only for information purposes and is not to be confused with investment advice. Consult with your financial advisor before investing. Tax laws are subject to change.