With limited withdrawal allowed before retirement, NPS is a true retirement product. The Government has also pushed NPS through greater tax incentives. Some of the benefits are exclusive to NPS investments. You can read about National Pension Scheme in detail here. NPS exit and withdrawal rules have been revised after this article was posted. You can read about revised exit and withdrawal rules from NPS in this post.
An aspect of NPS which is not very clear or at least makes a number of investors uncomfortable is the taxation on maturity. NPS falls under EET (Exempt-Exempt-Taxable) basket i.e. investment in NPS gets you deduction in your taxable income. Income/interest/gains on NPS are not taxed (unlike fixed deposits). However, maturity proceeds are taxable. This is unlike Public Provident Fund which falls in the Exempt-Exempt-Exempt (EEE) regime. This does not mean PPF is a better investment instrument than NPS. It is just that PPF faces a favourable tax regime. Please understand your investment decision shall not be driven by tax considerations alone.
In this post, we look at tax benefits available for investments in NPS and tax treatment of NPS withdrawal proceeds.
Update March 1, 2016: This is an old post on NPS taxation. Post announcement in Union Budget 2016, the taxation of maturity proceeds has been made more benign. Do go through this updated post on NPS taxation.
Tax benefits on Investment in NPS
- Investment up to Rs 1.5 lacs into NPS in a financial year is eligible for deduction under Section 80CCD(1). Please note this deduction comes under the overall ceiling of Rs 1.5 lacs for deduction under Section 80C. In case of an employee, this deduction is additionally capped at 10% of his salary (Basic + DA). In case the subscriber is self-employed, this deduction is capped at 10% of his gross total income.
- Up to Rs 50,000 per financial year for any investments into NPS under Section 80CCD (1B). This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C.
- Contribution from the employer up to 10% of Basic Salary + Dearness Allowance is also eligible for deduction under Section 80CCD(2). There is no upper cap (in terms of amount) on this tax deduction. This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C. However, this benefit is available to employees. Self-employed cannot avail this deduction.
You can see the push from the Government to attract investors to NPS. Deduction of Rs 50,000 under 80CCD (1B) is exclusive to NPS investments and cannot be availed through any other investment. Therefore a maximum of Rs 2 lacs can be claimed as deduction for own investment in NPS. Tax benefit on employer contribution is in excess of aforesaid benefit of Rs 2 lacs.
As far NPS tax benefits (on investment) are concerned, there is little confusion or discomfort. The problem lies with the tax treatment on maturity.
Tax treatment on Maturity or Withdrawal
NPS taxation on withdrawal or maturity is a grey area, atleast for me. Since the retirement of first generation of NPS subscribers is a long time away, I do not see much clarification coming from the income tax department soon.
As per my understanding of IT section 80CCD, the tax treatment of NPS withdrawals shall be as follows:
1. Withdrawal on retirement:
At least 40% of the accumulated wealth in the NPS account needs to be utilized for purchase of annuity/pension. Remaining 60% can be withdrawn as lump sum. Lump sum withdrawal will be taxed in the year of withdrawal at per investor’s income tax slab. Annuity income in the subsequent years will be taxed too.
Update: Feb 29, 2016
Under the latest budget proposal, the Finance Minister has proposed income tax exemption for 40% of the NPS maturity amount. Read this post for greater details. This sweetens the deal for NPS investors.
2. Pre-mature exit from NPS (Exit before Retirement)
At least 80% of the accumulated wealth in the NPS account needs to be utilized for purchase of annuity/pension. Tax treatment is same as on withdrawal on retirement. Both lump sum withdrawal and annuity income will be taxed.
3. Partial Withdrawal from NPS (without exiting the NPS)
Under the revised exit and withdrawal rules for NPS, limited partial withdrawal from NPS is permitted subject to certain conditions. I am not very sure about tax treatment of such partial withdrawals since this is a new change in NPS and could not find anything under 80CCD or Section 10 to form a view on its tax treatment. In my opinion, to keep parity with other withdrawals from NPS, partial withdrawal shall be taxed in the year of withdrawal as per subscriber’s income tax slab.
4. Withdrawal in the event of death of subscriber
In the event of death of the subscriber, the nominee can withdraw the accumulated corpus (in case of corporate sector NPS or self-employed). The nominee can opt for annuity payouts too. In case of government sector NPS, purchase of annuity (at least 80%) is mandatory and remaining can be taken as lump sum. As I understand, both the lump sum amount and annuity payments will be taxed as per nominee’s income tax slab. (could not find any clause that provided exemption to such income. Section 10 (10D) refers to only life insurance policies). This is in contrast to what I had written in my earlier post. If you have a different opinion, please let me know in the comments section.
Alternate view on Taxation of Lump sum withdrawals
I read an article by Manoj Nagpal, CEO, Outlook Asia Capital, in ET Wealth in March, 2015 where he highlighted a part of Income Tax Act (Section 10 (10A)), which offers some relief to subscribers on lump sum withdrawals on retirement. You can read the original article here.
Commuted pension amount refers to lump sum withdrawal on retirement.
If Section 10 (10A) applies to NPS, commuted pension (lump sum withdrawal) is tax-free for Government employees.
For private sector employees, in case the employee gets gratuity, one-third of commuted pension (lump sum withdrawal) will be tax-free. On the other hand, if the employee does not get gratuity, one-half of the commuted pension will be tax-free. If you are self-employed and have subscribed to NPS on your own, no such tax benefit shall be available.
So, if Section 10 (10A) applies to NPS, there is no parity in taxation on NPS lump sum withdrawals and depends on nature of your employment.
Please understand there is a big “If”. I am not sure whether Section 10 (10A) applies to NPS or not.
Some have advocated that NPS withdrawals should be eligible for indexation benefits (similar to one you get in debt funds or real estate) However, for that to happen, income on NPS funds has to be treated as capital gains. There is no provision in the Income Tax Act on this front.
PersonalFinancePlan Take
As pointed out before, retirement of first generation of NPS subscribers is quite some time away. So, you cannot expect clarification from Income Tax department, unless of course Income Tax department choose to be pro-active. Better clarity will emerge when people start retiring and there are litigations on this issue.
Tax considerations alone should not drive an investment decision. However, these do play a critical part. NPS, to me, is an excellent product and can be a real boon for subscribers in India where penetration of financial products is quite low. However, given its tax treatment vis-a-vis other financial products, it seems you can do better without NPS. I have expressed my reservations on NPS in an earlier post.
Taxation is a policy decision and can change. NPS may face a better tax regime. Or long term capital gains on equity funds may start getting taxed after 10-15 years. Taxation on debt mutual funds was changed last year. However, I can not speculate how tax policy will take shape. Under the present tax regime, as I understand, NPS withdrawals will be taxed at investor’s marginal rate. If you are going to get taxed on the entire NPS accumulated amount, it does not really matter whether you pay the tax now or 30 years later. It is mathematical construct.
For instance, suppose you have Rs 1 lac(taxable income). You pay 30% tax and invest the remaining amount (Rs 70,000). If the amount grows at 10% p.a. for 30 years, you will get Rs 12.21 lacs at the end of 30 years. On the other hand, if you invest Rs 1 lac in NPS today (save Rs 30,000 in taxes), the amount will grow to Rs 17.44 lacs. After you adjust for 30% tax, you are left with Rs 12.21 lacs. So, if the tax has to be paid, it does not matter when you pay tax.
There is an additional problem. You may be in a lower tax bracket now but when you make the lump sum withdrawal on retirement, you might fall in the highest tax bracket.
On a different tangent
On recommendation of Bajpai committee, PFRDA has made changes to NPS. The greatest strength of NPS was its low cost (due to passive index investing). However, since PFRDA has allowed active management, low cost structure will no longer sustain. Hence, in my opinion, NPS’s greatest strength has been compromised.
You can argue that active management will give better results (and that comes at a cost). Yes, that has been the experience in our country till now. You cannot say the same in developed countries. To be honest, there is nothing wrong with active management. But, if you are looking for active management, you can simply invest in mutual funds. In my opinion, NPS should have been left the way it was (at least as far as index investing was concerned), a low cost product.
NPS (or for that matter any financial product) cannot be everything to everyone. A lot of investor money has been lost trying to find one-size-fits-all solutions. Investment-cum-insurance products (especially traditional insurance) plans are a case in point. Unfortunately, our regulators are always in search of one.
What is your opinion on taxation of NPS? Do let me know in the comments section. I will keep making changes to this post as I get more clarity on taxation on NPS.
Disclaimer: I am not a tax expert. The analysis is based on my interpretation of Income Tax Act.
Deepesh is a SEBI registered Investment Adviser and Founder, www.PersonalFinancePlan.in
87 thoughts on “NPS Tax Benefits and Tax Treatment on maturity”
Sir, I am a TAMIL NADU government employee and monthly 10% of amount from my salary is deducted for CONTRIBUTORY PENSION SCHEME by the employer.
MY QUESTIONS ARE,
1. Am I in NPS?
2. Can I avail Rs.50000 in 80CCD(B2)?
Hi Ela,
1.Tamil Nadu State Government signed up for NPS very early. As I understand, Tamil Nadu notified that all new employees joining after April 1, 2003 will have to mandatorily subscribe to NPS. http://pfrda.org.in/MyAuth/Admin/showimg.cshtml?ID=417
So if you started working after April 1, 2003, you would be a subscriber to NPS.
2. 80CCD(2) is for contribution by the employer. You can check this in your payslip. Government would contribute to either your EPF account or NPS account. If you are a mandatory NPS subscriber, Govt. would be putting this in NPS account.
If you are talking about Rs 50000 under Section 80CCD(1B), you can do that. You can go to the following link https://enps.nsdl.com/eNPS/LandingPage.html and follow instructions and invest Rs 50,000 in Tier-I account.
Alternatively, if you are already contributing to NPS through your salary (being a NPS subscriber), you can treat that for tax benefit under Section 80CCD(1B) too.
Thanks a lot for given information with GO.
Hi Deepesh,
I have read somewhere that 40% of the accumulated corpus, with which one is supposed to purchase annuity, will not be taxable. In the above example, this amounts to Rs. 0.4*17.44 lac = Rs. 6.98 lac.
Thus, one will be allowed to withdraw Rs. (17.44 – 6.98) lac = Rs. 10.46 lac.
Considering 30% tax bracket, applicable tax on the above amount will be Rs. 10.46*0.3 lac = Rs. 3.14 lac.
Thus the amount in hand will be Rs. (10.46 – 3.14) lac = Rs. 7.32 lac.
Therefore, the total corpus from NPS will be Rs. (6.98 + 7.32) lac = Rs. 14.3 lac, higher than Rs. 12.21 lac.
Please comment.
Hi Nilanjan,
You are right. The amount that you use to purchase annuity won’t be taxed upfront. However, the annuity or pension income in the forthcoming years will be taxed at the marginal rate.
I agree with you. You have done the right set of calculations (almost). Rs 6.98 lacs, you won’t get upfront. The annuity purchased with the amount will be taxed in the year of receipt.
I wanted to convey a different perspective i.e. NPS is essentially tax deferral. Every bit of maturity amount will get taxed. It is quite possible that you may be able to benefit because of income tax slabs. But income tax slabs keep changing. You don’t know what slabs will be by the time you retire.
Just to add to your point, it is quite possible that you are in a lower tax bracket while at the time of retirement, you are in a higher tax bracket. So,a lot to think about.
In fact, now you don’t even need to withdraw lump sum at one go. You can spread lumpsum withdrawals across 10 years. Please go through the following post.
http://www.personalfinanceplan.in/opinion/should-you-invest-rs-50000-in-nps-for-the-extra-tax-benefit/
So, depending on accumulated corpus, you can optimize taxes in a big way.
Thanks Deepesh!
HI Sir,
Pls help with the following:
If 100% is selected as annuity, then there’s tax only on the annuity income as per slabs in that age means tax on 60% can be saved in that year by selecting 100% annuity.
Hi Geet,
You are right. You won’t have to pay any initially.
However, higher allocation to annuity means higher annuity income in the future.
Annuity income is also taxable.
Hence, you might be required to pay more tax in the future years.
But yes, income tax slabs will come into play and reduce tax liability.
Do note PFRDA has allowed to spread lumpsum withdrawal over 10 years. So, you can use this aspect too to reduce your tax liability.
http://www.personalfinanceplan.in/opinion/should-you-invest-rs-50000-in-nps-for-the-extra-tax-benefit/
Please go through the above post. You might find it useful.
Sir…my wife who is a home maker holds an nps account with amount of Rs 14 lacs.She is 30 now. Pls tell me whether to exit from nps and purchase immediate annuity of 100% from lic or continue till the age of 60. Which option is better????
Why do you want to exit? You need the funds?
What was the source of these funds?
Don’t exit. Continue with minimum contribution.
I am 41 year old I will invest rs 50000/_ per year pls tell me the. Maturity amount after 20 year what the due tax on maturity amount
Dear Tilak,
Returns in NPS are market linked. There is no return guarantee. So, I can’t really tell the maturity amount. The returns will also depend on the mix of equity and debt that you choose for your funds.
Lump sum withdrawal and the annuity income will be taxed as per your income tax slab.So, tax will also depend on your income than NPS.
Dear Sir,
I am working as an govt employee. I have a following doubt.
If we want to claim the tax deduction under 80CCD(2) [Employer Contribution] should we add the the amount in the Gross Salary?
Regards,
Digambar.
Dear Digambar,
I am not sure if I got your question properly.
Anything that you get from your employer is included as part of your gross salary.
Just that the part under Section 80CCD(2) wil be exempt from tax.
hi i am self employed person so how much tax exemption can be availed by me for NPS.
Also how much I contribute so that i get maximum tax Benefit
Hi Varun,
You can claim Rs 50,000 under Section 80CCD(1B).
Benefit under Section 80CCD(2) is not available self-employed.
Under Section 80CCD(1), you can claim deduction up to 10% of your gross salary.
since i am self employed then how can i calim deduction upto 10% of Gross Salary
I am sorry. I meant gross total income (and not gross salary)
Dear Sir,
I am state govt employee. i have the following doubt
My gross salary income is 747982 without taking into account the govt contribution of 10% to NPS which is 66078. Now my doubt is whether my gross salary income should be 747982 or 814060(747982+66078).
Regards,
Digambar.
Dear Digambar,
To be honest, this is grey area to me too. As I understand, employer contribution to NPS won’t form part of your gross salary. In my case, EPF contribution by the employer were not part of Form 16 given to me by the employer. I am extending the same logic to NPS.
But I am not very sure.
However, this should not impact your NPS deductions. As per Section 80CCD(1), you are allowed deduction for own contribution upto 10% of basic+DA. Gross salary does not come into picture.
I was c.govt employee and due to resign I received NPS amount in jan2016. Should I pay tax on it.I m a tax payer.
Dear Sir,
I assume you are talking lumpsum amount at maturity from NPS.
NPS maturity amount is taxable. Even the pension income is taxable in the year of receipt.
I am a 53 year old employee in private sector. Under 80C 1.5 lak slab limit is crossed. My annual gross salary 25laks. I am fall in 30% slab. So in my case maximum how much I can avail under 80CCD. Is it any useful for me as of my service period left out 7 years only. Please advise.
Dear Sir,
You can avail the benefit. You will certainly save some money as tax.
You can go up to Rs 1.5 lacs under Section 80CCD(1). This is within Section 80C limit of Rs 1.5 lacs.
An additional Rs 50,000 under Section 80CCD(1B).
There is deduction under Section 80CCD(2) too but that is for employer contribution to your NPS account.
For own contribution, the cap is Rs 2 lacs.
There is no crisp answer. In your case,you wouldn’t be able to generate a significant corpus in NPS. Hence you may actually be able to reduce your tax liability during retirement. If you feel your marginal income tax rate in the years of retirement will be lower than 30%, then you can invest.
You might find the following post useful.
http://www.personalfinanceplan.in/opinion/should-you-invest-rs-50000-in-nps-for-the-extra-tax-benefit/
Thanks Deepesh for your prompt and valuable advise.
Thanks Uday. Glad you found the response useful.
Thanks for the detailed article. Would like to clarify few things here:
1. 40% goes to annuity scheme – Does it mean no tax on this component…if so how EET is applied here
2. Will there be any TDS deducted on maturity ?
3. For illustrations we should compare investing 50000 ( NPS ) + 15000 ( tax saved in Debt Fund) Vs 50000 ( Debt fund ) for a given period of time – Am i Right here ?
Thanks for the detailed article. Would like to clarify few things here:
1. 40% goes to annuity scheme – Does it mean no tax on this component…if so how EET is applied here
2. Will there be any TDS deducted on maturity ?
3. For illustrations we should compare investing 50000 ( NPS ) + 15000 ( tax saved in Debt Fund) Vs 50000 ( Debt fund ) for a given period of time – Am i Right here ?
Dear Sunil,
Glad you liked the post.
1. Annuity income is pension. Annuity income (in the year of receipt) is taxed at your marginal income tax rate (income tax slab). Lump sum maturity amount is also taxed at your marginal income tax rate.
2. Don’t think if TDS is applicable. However, you need to pay tax on the maturity amount.
3. Not really. You are missing out on a interesting aspect. 50,000 in NPS vs Rs 35,000 in debt fund. That too, if you don’t plan to invest in any other kind of product. Even in this case, NPS maturity amount is taxed at your marginal income tax rate.In case of debt funds, capital gains will be taxed at 20% less indexation.
Sorry for duplicated post.. Have one more question
4. If my employer starts NPS contribution.. will my NPS still valid or how will it work self subscriber-NPS – corporate subscriber-NPS ?
You can not have two NPS accounts. I assume you would have opened NPS account under All Citizens model.
You can ask your employer to contribute to your existing NPS account.
1. May be I am not getting your statement exactly. Income as Pension, from Annuity is taxable – but what about tax on 40% of the maturity amount ?
3. As you rightly said we have to illustrate, based on tax implications too..
Btw…Do you have any articles on HUF account and long term debt funds. Would like to discuss more on these topics.
Thanks Again!
At maturity, lump sum withdrawal is taxable.
Annuity (pension) income is also taxable.
I have not written on HUF till now. I have a few posts on debt mutual funds.However, there is no specific post on long term debt mutual funds.
Illustration on NPS Vs Debt Funds
Assuming a 40years aged person investing for 20 years. All in terms of Rupees
A. NPS:
50000 for 20 years @9% Annually compd = 28 lacs > After Tax = 19.5 lacs
Tax Saved ( 15000 ) for 20 years is invested in Debt fund:
15000 for 20 years @9% Annually compd = 8.5 lacs > After Indexed Tax = 8 lacs
Total received amount: 19.5 + 8 = 27.5 lacs
B. Debt Fund:
50000 for 20 years @9% Annually compd = 28 lacs > After Indexed Tax= 27.5 lacs
So the returns are one and the same, but assume if NPS is made EEE the NPS will win!!
Please correct me, if anything wrong here.
The approach is correct but there can be few more scenarios.
If NPS is EEE, it gets a big advantage. Post-tax yield will shoot up. However, that’s not the case at the moment.
A few observations:
1. The correct comparison is Rs 50,000 in NPS vs Rs 34,550 in debt funds. You have to consider cess too.
2. NPS is taxed as and when you withdraw. Atleast 40% has to be converted to annuity. For lump sum withdrawal, you can do it over 10 years. This is a new development. Do check my post on “Should you invest in NPS for additional tax benefit?” http://www.personalfinanceplan.in/opinion/should-you-invest-rs-50000-in-nps-for-the-extra-tax-benefit/
Both annuity income and lumpsum withdrawal will be taxed in the year of receipt.
Hi,
Is the contribution made by the state government to the employees account of NPS as its contribution exempt under section 10? IF yes under which section and is there a notification to that effect
Hi Ashok,
Contribution by employer is exempt up to a certain limit (10% of salary) under Section 80CCD(2) of the Income Tax Act.
Please do go through the following post.
http://www.personalfinanceplan.in/opinion/common-doubts-about-nps/
There is any possibility to revise the rules for tax on maturity ?
This scheme will be continue long ?, even after change the government in future?
Dr. Rao,
I have no idea. Don’t base your decisions on potential change in tax laws.
That will be nothing less than speculation.
Thanks for your comments.
Will it be fine investing ( NPS ) in category ‘C’ – Corporate Debt Funds ? because generally long term debt funds are not doing good due to fluctuations in interest rates. Or Please explain, how category ‘C’ will work.
Its your call. Both corporate bonds and government bonds will be subject to interest rate risk. With NPS, fund manager can afford to hold bonds till maturity. There is little redemption pressure. So, I am not much concerned on that front.
Corporate Bonds have an additional credit risk which government bonds don’t have.
I am personally not a big fan of corporate bonds since the upside (in terms of spread over government bond) is limited. However, if they default, entire capital is gone. But that’s a personal opinion.
You can invest in both G and C, and yes of course E.
I have found another interesting comparison results but its a different case.
Case: Would like to invest 150000 in debt instruments every year as risk free component based investment (apart from 80C investments )
( Risk Free: This time I took PPF instead of Debt fund as its very difficult to choose/follow right AMC/funds )
Interest Rates:
Based on NPS avg performance from category – C – took 9.7%
PPF – interest varies yoy so took 8.5%
A. NPS:
50000 for 20 years @9.7% Annually compd = 30 lacs > After Tax = 21 lacs
Tax Saved ( 15000 ) for 20 years is invested in PPF:
15000 for 20 years @8.5% Annually compd = 8 lacs
Total received amount: 21 + 8 = 29 lacs
B. PPF
850000 for 20 years @8.5% Annually compd = 44.5 lacs
Gross Total – A + B : 73.5 lacs
Vs
PPF:
150000 for 20 years @8.5% Annually compd = 79 lacs
PPF found to be marginally better and fixed results here!!
Dear Sunil,
PPF is an excellent investment product. There is no doubt about that. I have written a post on how PPF account can be used as a pension tool. If used with some discipline, PPF can give better income than any pension plan (during retirement).
I agree with your maths. I will just list out a few implicit assumptions that have been taken.
1. PPF returns are not fixed. Change every year.
2. Corporate debt return of 1 year may not repeat.
3. Depending upon your other income during retirement, you may be able to bring down your tax liability on NPS withdrawals and annuity income. You are taken income tax at flat 30%.
4. In PPF, you can not invest more than Rs 1.5 lacs per financial year.
http://www.personalfinanceplan.in/product-review/all-you-need-to-know-about-ppf-account/
My opinion: If you are looking for a pure debt product and are not concerned about tax benefits, PPF beats NPS easily.
Hi Deepesh,
My employer is providing NPS and I believe only benefit I see is no charges may be imposed on employee. Can I reuse the PRAN after exiting from the current company and still use the same NPS account with another PoP. Or is it more simpler if I open my own NPS account with standard PoP such as ICICI.
Thanks in Advance.
Sudhakar
Dear Sudhakar,
You can’t have multiple PRANs.
You can use the existing NPS account with the new employer.
Thanks Deepesh for quick reply. I mean is it better to open my own PRANs account or should I go with employer provided one.
Thanks
Sudhakar
Sudhakar, if your employer has already provided one, you can’t open another.
You have to live with employer provided number only.
My employer has not yet provided, I have the option to have one so thinking should I go with employer provided one or should take my own personal one.
Thanks
Sudhakar
You can go with employer provided one. There is no problem.
what will be the tax on corpus amount payable to the nominee after the subscriber’s death.if it is tax free,then it means,that although annuity income is taxable but the purchase price of annuity will be tax free.
Dear Puneet,
I am not sure. I have put that down too in the post.
As of now, in my opinion, both lump sum and annuity will be taxed. I could not find the provision in the Income Tax Act that makes it tax-free. However, it is quite possible that I may have missed out on something.
dear deepesh
please try to find the answer of this question,as it will be the basis of me investing or not,cos if it is tax free we could buy annuity with 100% of the corpus.
Sure. I will update the post as and when I have better clarity.
Dear deepesh,
I want certain clarification on following points.
1) weather 40% tax exemption on NPS fund is applicable on per withdrawal? suppose if i withdraw 25% of my NPS fund, than it should be wholly tax free as it is less than 40% and again next year i will withdraw another 25% amount and the same will be exempt as it is less than 40%.
2) If i invest more than 100000 yearly in NPS and on maturity wether whole amount of fund would be taxable even though i have claimed deduction upto Rs.50000 in every tax rerurn.
Dear Sujata,
1. Better clarity is awaited. Once the proposal reflect in the Act, we can make a more accurate assessment.As I understand, it is 40% of the total corpus. Perhaps first 25% will be exempt. Next 15% will be exempt too. Everything else will be taxed. There are some operational issues with this approach. For instance, NAV will be different at the time of first and second withdrawals. So, which one to consider? Clarity will emerge over the next few years.
2. The entire amount will be considered for taxation. It is irrespective of the amount of tax benefits you took on investment.
DEAR SIR
NOW I am working in sbi.my 80 c limit already completed ( in insurance 100000, ppf-50000).now my nps contribution is 26000 and on behalf of bank nps contribution is 26000
Now my question is how much will I get tax exempted 52000 OR 26000
Both are exempt.
Rs 26,000 (own contribution) under Section 80CCD(1B).
Rs 26,000 (employer contribution) under Section 80CCD(2).
Sir
I have invested (under Sec. 80 CCD (1B)) Rs. 45000/- for financial year 2015-16 through eNPS on 30.03.2016 13:31 and got Online payment acknowledgement receipt with Transaction status successful. My CRA account shows that date of credit of the amount is 04.04.2016 under financial year 2016-17.
1. As I have invested the amount in financial year 2015-16 then the amount for tax saving purpose in financial year 2015-16 is considerable or not?
2. Investment (under Sec. 80 CCD (1B)) Rs. 50000/- for financial year 2016-17 is allowed or not?
Thanks
Dear Aditya,
1. In my opinion, since you initiated the transaction on 30st, you should get credit for this in FY2016. Your bank account would also have been debited on March 30th. You have acknowledgement receipt too. Would suggest you make a claim in FY2016 and keep your bank statement ready too in case of scrutiny.In my opinion, the date you initiate the transaction is more important than date of credit of units. You can confirm this with a chartered accountant.
2. Yes, the deduction under Section 80CCD(1B) is allowed for FY2017 too.
Hi,
Need one info
Suppose after 60 year my maturity amount approx 1 crore , I will withdraw 60 % amount (60 lak)
Hi Manish,
I am not sure if your question is complete.
You can withdraw up to 60% of accumulated corpus as lumpsum.
Hello
I transferred 50000 in my NPS account on 30th march, and i got message for purchasing units on 4th april.
now i have received transaction detail of month march and i am not seeing 50000 there.
Am i able to claim this amount for tax exemption or it will go to next year.
Shahabuddin
Dear Shahabuddin,
In my opinion, the date of investment should be considered. I assume your bank statement shows date of debit on or before March 31, 2016.You would have also received acknowledgement receipt for investment made.
Would suggest you make a claim and keep these documents ready.
However,I am not very sure on this. Request you to consult with a Chartered Accountant too.
Thanks for reply …
Hello sir,
Is there income tax implication on SUKANYA SAMRUDHI YOJANA?
Hi,
SSY falls in EEE basket. There is no tax implication at the time of maturity.
You get tax benefit under Section 80C for investment.
There have been several posts on NPS tax treatment and it is not clear to me if one ends up in paying double tax on NPS at Maturity. Consider a case where the annual investment in NPS is more than the INR 2,00,000 limit say INR 4,00,000.
1. Assume that the the additional investment of INR 2,00,000 is taxed as part of Gross income as per the income slab.
2. Say the investor has opted for 50% investment in Equities (E) AND Balance in Gild edged securities (Govt bonds)
3. Assume after 10 years on maturity say 40 % is invested in Annuity and balance withdrawn (with the investment pattern remaining the same over the years)
4. If the entire balance corpus of 60% is taxable as per the slab (with annuity on 40% also being taxable), I see the following discrepancies
5. The corpus has got the principal & the growth (capital gain component from equities portion& interest portion from the fixed interest securities). Let me structure the same below:
5.1 Principal component A – Investment portion where tax advantage has been taken advantage of
5.2 Principal component B – Investment portion where the excess over permissible tax limit has been taxed already as part of annual taxable income
5.3 Corpus growth – Return on Equities (had this investment been in equities secondary market it would have come under LTCG)
5.4 Corpus Growth – Interest on Govt bonds (scheme G or Scheme C) – Taxable
Is n’t that component 5.2 is getting taxed twice and component 5.3 would have got exempted from Tax if directly invested in equities market (since the risk of returns remains the same)…So is n’t a lot depends on the annuity return (which is difficult for us to predict at the time of investment as we do not know what kind of annuity products will be available as the risk profiling of the public in general may go through revisions)…While I have not done the math taking the 10 year investment and going into the detailed computation, at the initial look it appears that if the 60% entire corpus is taxable it looks a disadvantage. A fair treatment would have been to exempt the principal that is taxed already and also to exempt investments in scheme E …to make this attractive esp. for non govt investors…Any views
Yes, Natarajan. It is double taxation. And that’s the way it is.
NPS is not a capital asset. Hence, there is no concept of capital gains taxation.
Btw, NPS taxation was revised in the last year budget. Suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
Hi Deepesh,
Appreciate your time spent.
I have a PF running from my salary which already is crossing 1.5 Lakhs limit and i’m claiming 80 C benefit.
Now my question is – Can i invest 50,000 more in NPS and can i avail more benefit ?
Thanks Nirmal.
Yes.
Hi Deepesh,
I am a Govt. employee. My gross salary for FY2016-17 is 8lakhs.
My investments are PPF: 1lakh and LIC premia: 1lakh
Thus I have reached tax saving limit of 1.5lakh u/s 80C.
Being a Govt employee, mandatory employee contribution to the NPS is 74000.
Now my question is, Can I show 50000 from this to be u/s 80CCD(1B)?
i.e. without additionally putting any amount can my tax saving limit be 2lakh?
Hi Prakash,
In my opinion, you can show even your mandatory contribution under Section 80CCD(1B). In your case, you do not need to put an additional Rs 50K in NPS to claim benefit under Section 80CCD(1B).
Do note different experts have different opinions about this issue.
Hi Deepesh,
I am a Govt. OFFICER. My gross salary for FY2016-17 is MORE THAN 12lakhs.
My investments are MORE THAN 150000 UNDER u/s 80C.
Now my question is, I Want to invest 50000 u/s 80CCD(1B)for four year upto reaching 60 of age.At retirement, can I withdraw 100% amount of maturity?
Hi Mr. Patel,
If the accumulated amount is greater less than Rs 2 lacs, you can withdraw the entire amount lump sum.
Otherwise, you have to purchase annuity for atleast 40% of the accumulated corpus.
hi deepesh,
I am central govt employee. As nps suscriber i am already contributing 10℅ of my salary as employee share and same amonut is contributing as employer share.as per the rules tax exemption allowed on investment upto 2 lac( 1.5+ 50000 nps). but here i am confused that how will employee and employer nps share be manage in this criteria. while i am also contributing in ppf account and pli scheme holder. and what is the tax exemption on additional 50000 nps contribution
Hi Deependra,
I am not sure if I got your question right.
Your employer contribution has nothing to do with Rs 50,000 tax benefit.
Hence, only your contribution will be considered for tax benefit under Section 80CCD(1) or Section 80CCD(1B).
Employer contribution is covered under Section 80CCD(2).
I will be getting full payment on my nps amounting to 60000 rs.annuity need not be purchased since less than 2laks.what is the tax liability of this amount.
40% will be exempt from tax. Remaining shall be taxed at your slab rate.
Thank you sir.But the customer support officer of NPS insists the tax liability is100% since the amount is less than two laks.Am confused.
Don’t trust customer care officers. They may not know about taxation.
Suggest you verify my opinion with a good Chartered Accountant.
Hello Sir,
Nice article. Thanks for sharing.
This is my doubt.. Lets say I am investing 2 lac in NPS. I already have enough savings for 1.5 lac under 80 CCD(1) covered by my salary PF, PPF, etc. So, I can claim only 50,000 of my NPS savings under 80 CCD (1B). Remaining 150000 of my NPS savings will anyway come under taxable income. So, I will be paying tax for my NPS savings of 150000 every year.
During maturity, I have to again pay tax for 60% of the amount I withdraw (either as lumpsum or annuity). I will be paying tax twice for considerable amount of my principal investment in that case.
How is it profitable??
Second doubt:
Suppose I join NPS and I decide to quit my job and opt to be a home maker (no income from salary) after a few years, can I still continue my NPS account? Is it valid? Am I allowed to still make investments in NPS (lets say using husband’s income)??
Kindly clarify.
Hi Harini,
You are right.That’s why I ask readers not to breach Rs 50,000 limit per annum in NPS.
Yes, even homemakers can invest. Your husband can transfer money and the money goes to your account.
In my opinion, if you are planning to quit job, stay away from NPS.
Do I have to account annually for notional gains as mentioned in NPS Transaction Statement ? Do I have to show NPS as an asset in my balance sheet ? If yes, then which figure, the total amount of contributions (principal amount) or the latest NAV amount ?
An accountant is the better person to answer this question.
Even though I am not very sure, believe it is your choice. You can show at purchase price or current price in the balance sheet.
The issue I foresee is, if you show at the current value in the balance sheet, how do you account for it in the income statement?
Please talk to a CA.
Thank you very much for your quick reply. Also I wanted to know whether 10% cap of gross total income on sec 80 ccd 1 has been waived off ?
Hi Kalpesh,
The cap is still there.
I am govt servant (old pension scheme) and contributing Rs 50000 annually as voluntary contribution to NPS.
The “notional gain” shown in the annual statement received for the year 20-21 is Rs 24000 apx.
The account people say that this 24000 though notional will be added to my income for tax calculation.
Is it correct?