In the last budget, the Finance Minister offered an additional tax benefit of Rs 50,000 per year for investment in NPS. This tax benefit is available exclusively to NPS under Section 80CCD (1B). Moreover, this benefit of Rs 50,000 is over and above Rs 1.5 lacs under Section 80C. For this additional tax benefit, NPS has caught the attention of many investors.
Should I invest that extra Rs 50,000 in NPS to avail that exclusive tax benefit of Rs 50,000? I get this question many times. If you fall in the highest tax bracket, this will mean tax saving of Rs 15,450, which is significant.
If you want to know about NPS in general, you can go through the following post.
All you need to know about NPS
This is an old post but gives you a fair idea of NPS. Refer to updated posts for Tax benefits of NPS and Revised Withdrawal and Exit Rules for NPS.
What should you do? Should you invest Rs 50,000 in NPS for additional tax benefit?
Before I get into whether you invest Rs 50,000 in NPS for that extra benefit, let’s consider some issues with NPS.
Issues with NPS
- NPS falls under EET tax regime. Hence, tax benefit for NPS is essentially tax deferral. You can pay tax now or pay tax later. Doesn’t really matter. The pension income from NPS and lump sum withdrawal from NPS will be taxed at your marginal income tax rate as per the extant income tax laws.
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.
Must Read: Tax Treatment of NPS and Tax Treatment at Maturity (Updated)
- Though NPS withdrawal and exit rules have been made less stringent, the rules offer only minor leeway. For someone looking for early retirement, 80% of the accumulated corpus has to be converted to annuity. What will you do if you are planning an early retirement?
Must Read: Revised Withdrawal and Exit Rules for NPS
- For reasons I have never found easy to comprehend, designers of NPS want to make it a One Stop shop for all your investment needs. So, they want to give you exposure to equity, government debt, corporate debt, real estate etc. Due to this, the low cost structure of NPS is expected to be compromised.
Must Read: NPS likely to get more expensive
- There are other issues too relating to capping of investment in specific asset classes. For instance, equity exposure in Government Sector NPS is capped at 15% while the exposure in private sector (or all citizen model) is capped at 50%. A young professional can do with a higher equity exposure.
NPS is essentially tax deferral. You pay tax now or at the time of retirement. For instance, you invest Rs 50,000 in NPS for 15 years. You are in the highest tax bracket. In 15 years (at 10% p.a.), the amount will grow to Rs 17.47 lacs. If your marginal tax rate is 30%, you will get Rs 12.07 lacs post tax.
On the other hand, if you pay tax on Rs 50,000 every year and invest the remaining Rs 34,550 in any instrument that gives tax-free return of 10%, you will end up with same Rs 12.07 lacs.
The play is on the marginal rate of taxation (income tax slab). If you can somehow manage a lower marginal tax rate at the time of withdrawal (after retirement), you can actually save some money by investing in NPS.
It is in this light that a recent circular by PFRDA on withdrawal of lump sum assumes importance.
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.
PFRDA Circular on Deferred Withdrawal of Lump Sum
In a notification on October 29, 2015, PFRDA clarified that the lump sum amount can be withdrawn in up to 10 annual installments till the age of 70. Please note the installments need not be equal.
This is applicable to both Government Sector NPS and All Citizens model (including corporate sector NPS).
You can download the circular (Clarification of deferred withdrawal of lump sum) from PFRDA website.
How does this Change affect you?
This is an interesting development. Since the lump sum amount can be huge, withdrawing the entire amount at one go would have had serious tax implications. The lump sum amount would have taken you to highest income slab (30%) in the year of withdrawal. Since the withdrawn amount is to be taxed as per income tax slab, the tax liability could have been huge.
However, with this provision of withdrawal in 10 annual installments, you can spread lump sum withdrawal across 10 years to reduce your tax liability in the years of withdrawal.
Illustration
Let’s assume by the time you retire, you have a NPS corpus of Rs 1 crore. You choose to purchase annuity for Rs 50 lacs and decide to withdraw Rs 50 lacs as lump sum.
Though there are multiple annuity products available, let’s assume you opt for annuity for life. Let’s assume further that the prevailing annuity rate is 6% p.a. So, you will get annual pension of Rs 3.0 lacs every year for life. I assume there is no other source of income.
Tax exemption limit for senior citizens is Rs 3 lacs.
If you withdraw the entire lump sum amount in the year after retirement, your income for the entire year will be Rs 53 lacs. You will be taxed at your marginal tax rate. The total liability for the year will be Rs 14.5 lacs. I have assumed you have not availed any tax deductions.
On the other hand, if you spread out withdrawal of this amount across 10 years and withdraw Rs 5 lacs every year for 10 year. I have taken fairly stupid (but simplistic) assumption that your lump sum amount will not grow in the intervening 10 years.
Hence, your income for the next 10 years will be Rs 3 lacs + Rs 5 lacs = Rs 8 lacs. Tax liability for Rs 8 lacs comes to Rs 82,400 per annum. Over 10 years, you will pay tax of Rs 8.24 lacs.
That is a neat saving of Rs 6.28 lacs over 10 years.
With this relaxation by PFRDA, you can reduce your income tax liability to certain extent after retirement.
Points to Consider
- The lump sum withdrawals need not be in equal installments. So, you can withdraw Rs 4 lacs in first year, Rs 6 lacs in second year and Rs 3 lacs in third year. It is up to you. The only limitation is that you can make only one lump sum withdrawal per year.
- I have not considered any tax deductions. Considering tax deductions, you will have even more savings. If you can avail deduction of up to Rs 2 lacs every year (after retirement) through 80C investments or in any other way, savings would be even higher. In such a case, the tax savings would translate to Rs 9.78 lacs over 10 years.
- If you have other source of income, then the benefit of spreading lump sum withdrawal over many years will be nullified. In the aforesaid example, if you had other income of Rs 5 lacs (in addition to NPS pension), there is no tax saving. For one time lump sum withdrawal, you will pay total tax of Rs 23.48 lacs. For staggered withdrawal, you will pay total tax of Rs 21.63 lacs. The reason is higher other income will push you into higher tax bracket for all 10 years.
- Therefore, the extent of tax saving will depend on your NPS retirement corpus, NPS pension amount, other sources of income and deduction availed during post-retirement years. Here is a snapshot of various cases.
PersonalFinancePlan Take
The notification from PFRDA about withdrawal of lump sum in up to 10 installments can help reduce some tax liability after retirement. However, other issues regarding limited withdrawals, cost structure of NPS and investment restrictions still remain. You need to weigh the pros and cons.
There are better Section 80C investments available. You will develop a better retirement portfolio with your regular ELSS, EPF, PPF etc. So, you shouldn’t consider NPS when you are planning to fill your quota of Rs 1.5 lacs under Section 80C.
For the exclusive benefit of Rs 50,000 under Section 80CCD (1B), I don’t have a crisp answer. NPS, as a product, is still evolving. I don’t know how it will shape up. There have been so many changes already in the past 6-8 months.
You can consider NPS (for extra tax benefit of Rs 50,000) if you are in the highest tax bracket. I do not say this with a lot of conviction but I wouldn’t hold it against you for investing in NPS for that extra tax benefit. With some smart tax planning, you may actually be able to save income tax post retirement (and get taxed at a lower income tax rate).
If you are in the lowest tax bracket, then it does not make much sense (from the taxation perspective). You are getting taxed at 10%. At the time of retirement (or age of 60), you are unlikely to manage a lower income tax rate.
I have always maintained investment decisions should not driven by tax considerations alone. Investment in NPS is no different. NPS, to me, is still behind in certain important aspects. Personally, I wouldn’t invest in NPS for the extra tax benefit of Rs 50,000.
What would you do?
345 thoughts on “Should you invest Rs 50,000 in NPS for the extra tax benefit?”
Thank you Deepesh. Your article explains NPS well. The crucial part is put out clearly “NPS is essentially tax deferral. You pay tax now or at the time of retirement.The play is on the marginal rate of taxation (income tax slab). If you can somehow manage a lower marginal tax rate at the time of withdrawal (after retirement), you can actually save some money by investing in NPS.”
Thanks Pavan!!! Glad you liked the post.
Hi I am a central government employee and I am a member under NPS,what should I do to get additional tax rebate of ₹50000?
You need to invest in NPS for that extra deduction. You can contribute online.
https://enps.nsdl.com/eNPS/LandingPage.html
For FAQs on the subject, go through the following link.
http://npstrust.org.in/images/FAQs_eNPS.pdf
Alternatively, for your mandatory contribution, if you are not utilizing the investment for tax benefit of Rs 1.5 lacs under Section 80C (and section 80CCD), you can even show that contribution under Section 80CCD(1B).
3rd para of point 13 states “Government subscribers covered under NPS can also use eNPS for making voluntary contributions in their Tier I account (over and above the regular contributions) towards their PRAN to avail tax benefits to an extent of Rs. 50,000/- under section 80CCD(1B) of Income Tax Act, 1961. Further, they can also contribute for their active Tier II account.”
It’s means goverment employees covered under NPS have to make voluntary contribution over n above mandatory contribution…
Correct me if I wrong…
Yes, even Govt. employees can make voluntary contribution.
I have one query: Am I bound to maintain an equal amount per month or year to invest in NPS ? Or I am free to invest as per my convenience
No such restriction. You can invest as per your convenience.
Please Let me know If an Employee can specify to his/her employer , as to which Tier(Tier-I or Tier-II) of his NPS account the Employer Contribution to NPS has to go? Or is it mandatorily always Tier-1 ?
Dear Savera,
As I understand, it is Tier-I only. You can’t send employer contribution to Tier-2 accounts.
I am not too sure on this though.
Tax benefits are only for investment in Tier-I account.
First of all, I would like to thanks for a wonderful article and answers for all queries.
I am in 30% tax slab. Our employer run super annuation schemes and deposit 15% of total basic every year. After 60 Yrs, we will get 1/3rd of total amount as a lumpsum and rest used for giving pension till life long with a certain calculation. This is not shown in my annual tax calculation beacause it not my earnings. Now , i want to know whether deposing in NPS will give me extra tax benefit of above 1.5 lacs and if i become in 10% tax slab rate at the age of 60 yrs, will this be still benefits for me. best regards, thanks
Thanks Vijay.
Yes, you can additional tax deduction of up to Rs 50,000 by investing in NPS.
Annuity income will be taxed in the year of receipt. So, if you are in a lower tax bracket, you will pay lesser tax.
Thank you so much, Deepesh. It was an interesting article on NPS.
Thanks Aparna!!! Glad you liked the post.
Please do share with friends and family.
THANKS FOR A VERY DETAILED ARTICLE. HELPED ME CLEAR MY MIND , I AM RETIRING ON APRIL 2016 HENCE STARTING NPS FOR TAKING THE BENEFIT OF NPS 80 CC (1B)IN FY 2015-16 TAX RETURN WILL GET ME NO BENEFIT .
Yes, in that case, there is not much use. Don’t invest in NPS in your case.
Hi Deepesh,
I’m a 30 year old self-employed doctor falling in the tax-bracket of 20% as of now…i dont have a pre-set retirement age.
I have exhausted my Section 80c 1.5lakh deduction with PPF contribution & ELSS(sip) in this FY 15-16.
I dont have a NPS account yet. Will i be eligible for further tax relief if i invest 50,000/- in NPS…if yes under which section ?
Am i eligible for section 80CCD (1B) if hav not invested in NPS for sec 80c benefits.
Awaiting for your valuable feedback.
Dear Dr. Biswadeep,
You can do that. There is no such restriction that you have to take benefit for investment in NPS under Section 80C before you take benefit for investment under Section 80CCD(1B).
Technically, tax benefits for NPS are defined in Section 80CCD and not Section 80C.
So, you don’t need to worry.
Thanks a lot..
This clears my doubt abt NPS investment.
And i really appreciate ur articles…
Thanks Dr. Biswadeep.
If you like any of the articles, please do share with your friends and family.
Hi Deepesh,
Just a small clarification… Is the additional 50,000/- under section 80ccd (1B) linked to any gross/net income for a self emplyed professional like me?
Hi Dr. Biswadeep,
It is not linked to anything. The only limit is the cap of Rs 50,000 per financial year.
Now I am in tax bracket of 20% I would like to open an NPS account this year. Is it really good to pay tax now or invest 50k in NPS and pay tax later at time of retirement. If I don’t want to withdraw my money after retirement how much pension would I get. Can we withdraw accumulated money in installments or we need to withdraw 70% of accumulated amount at one shot.
NPS returns are market linked. So, I cannot comment about your corpus by the time you retire.
Of the accumulated corpus, at least 40% has to be converted into annuity.
For the remaining amount, you can withdraw in 10 annual installments. You don’t have to withdraw in one shot.
Infact, even the annuity per month will depend on prevailing annuity rates.
So, difficult to comment.
As I mentioned in the post, if you can somehow manage a low marginal income tax rate at the time of retirement, investment in NPS can be tax-efficient (for you). Otherwise, NPS is just tax-deferral.
Hi Deepesh,
Thanks for the useful article. I need a small clarification from you regarding additional 50k investment provision in NPS.
I’m working for a PSU. My total contribution(employee+employer) towards NPS is likely to be around 1 Lakh this year. In this scenario am I allowed to invest another 1 Lakh in other instruments which qualify for 80c deduction?
The phrase “additional 50k investment in NPS” is confusing me. Does it mean that I have to invest additional 50k in NPS apart from the compulsory contribution?
Hi Balasubramanian,
Glad you liked the post.
Reading into Section 80CCE, it states that The aggregate amount of deductions under section 80C, section 80CCC and sub-section (1) of section 80CCD shall not, in any case, exceed Rs 1.5 lacs.
So, deduction of Rs 50K under Section 80CCD (1B) is over and above the limit of Rs 1.5 lacs.
You have multiple questions. Let’s take them one by one.
Employer contribution to NPS is over and above limit of Rs 1.5 lacs under Section 80C and Rs 50K under 80CCD(1B).
So, let’s consider you invested Rs 55K and your employer invested Rs 45K in your NPS account. I am taking different numbers otherwise there will be too many 50Ks in the example.
In this example, you have following options.
1. Invest Rs 1.45 lacs in other 80C products (say PPF), Rs 55K in NPS (claim 5K under 80CCD(1) and Rs 50K under 80CCD(1B)). Total: Rs 2 lacs. Employer contribution of Rs 45K is over and above this Rs 2 lacs.
2. Invest Rs 95K in PPF , Rs 55K for your contribution under Section 80CCD(1) and Rs 50K in NPS under 80CCD(1B). Total: Rs 2 lacs. Employer contribution of Rs 45K is over and above this Rs 2 lacs.
As I understand, it is your choice how you want to treat own NPS contribution. You can treat it under Section 80CCD(1) or Section 80CCD(1B). So, you can also treat your compulsory contribution under Section 80CCD(1B).
You can specify this while filing income tax return.
Of course, you cannot claim the same Rs 50k under both 80CCD(1) and 80CCD(1B).
Hope this clarifies the doubt
Hi Deepesh,
I have been reading lot of articles regarding NPS, and believe me this is the best one so far which explains a lot in layman term.
Thanks for publishing it.
I am putting my understanding in 2 examples to differentiate normal NPS and corporate NPS. Correct me if I am wrong
Let’s say a person has already exhausted 1.5lks exemption under 80C. And he is planning to invest in NPS.
In case of Individual NPS (Tire-I):
If he invests 55k, he can claim 50k under 80CCD(1B), so the total would save 2 lks (1.5lks from 80 C and 0.5lks from 80CCD(1B))
In case of Corporate NPS (Tire-I)
If he invests 55k, and the employer’s contribution is 45k, then
For his 55k contribution, he can claim 50k under 80CCD(1B), so the total would be 2 lks (1.5 from 80 C and 0.5 from 80CCD(1B)).
The Employer’s contribution [45k] will not reflect in 80CCD(1B) or 80 C, but he will get the tax benefit. i.e. 45k would not be part of his taxable income hence he will save more tax on it.
Kindly correct me if my understanding it wrong here.
Regards,
Satish
Satish, you have captured it better than I did. Thanks!!!
Thank you Deepesh !!!
I think there is some confusion. I discussed this with an ICICI bank employee and she told me that tax benefit can only be taken on max 50000 either it is done by individual or by corporate or both(individual plus corporate).
Can you please confirm this once more if this is correct.
Dear Gaurav,
I am not sure if I got your question right.
You can open just 1 NPS Account.
Rs 50,000 is under Section 80CCD(1B). If you were talking about section 80CCD(1B), yes the tax benefit is capped at Rs 50,000.
There is benefit under Section 80CCD(1) too but the benefit is under overall basket of Rs 1.5 lacs under Section 80C.
If employer contributes to your NPS account too, the benefit is under Section 80CCD(2).
I don’t want to be harsh on bank officials but most of the time, they don’t know much about what they are selling.
Hello Deepesh,
First of all i want to say i really liked your article.I am a self employed assessee with a GTI of around Rs.450000.I want to invest Rs 50000 in NPS.So my query is that,as per sec 80ccd(1)will i can get a maximum deduction of 10% of GTI ie.Rs 45000 or i can get Rs 50000 deduction as per sec 80ccd(1b)? Will b glad to hear from you soon.
Hi Madhurima,
Glad you liked the post.
You can take both. In your case, Rs 45,000 under Section 80CCD(1) and Rs 50,000 under Section 80CCD(1B). Rs 95,000 in total.
If you want to invest only Rs 50,000, it is entirely your discretion how you show you want to show the investment in your income tax returns.
Thanks a lot deepesh.That clears my doubt.
Thanks a lot Deepesh,
I was in dilemma before referring your such a nice post on NPS.
Thanks Dinesh. Am glad you found the post useful.
Well, I must appreciate your ability to explain things with very clear examples!
This helped a lot to understand NPS as I am in the 30% bracket and was thinking to invest in NPS. Though, if the same 35K is invested in MFs it might give a higher percentage of growth also calculating the risk of liquidity.
Thanks Akhil. Appreciate your kind words.
Thanks for writing such details in laymen’s language.
Thanks Mohit. Glad you found the post useful.
I am Goverment Employee but Govt Investment in NPS ie employer Contribution of Rs.88000 can i take total deduction of Rs.88000 from my salary pls tell me section
Employer contribution to NPS is exempt from tax up to a certain limit under Section 80CCD(2).
How it works is a bit of a grey area for me too.
In any case, you don’t need to do much about it.
Here is how it should work.
1. If the employer shows it as part of gross salary, then you take deduction under Section 80CCD(2).
2. If the employer does not show it as part of gross salary, then you have received an automatic deduction.
Hi Deepesh, I think what he means to know is employer’s contribution to NPS – whether deductible over and above the 80 C limit of Rs. 1.50 lacs plus additional Rs. 50,000 under 80 CCD 1 B ?? SO IN OTHER WORDS, IN SIMPLE TERMS – an employee can get 1.50 lacs under own cont., plus 50,000/- and plus another 10 % of salary contributed by his EMPLOYER in this NPS scheme.
pl. confirm if I am correct as I am also a Bank trainer dealing in all social secy. schemes of Mr. Modi our PM.
You are absolutely correct, Hemant.
very nice article Deppesh, very informative in such a layman`s terms. i couldnt find a better article and comprehension on this issue.
I too need a piece of advice. seeing above posts, i m also a govt employee contributing 75000/annum in nps and same 75k by govt as contribution. i have already invested 2 lac in 80c instruments like insurance policies,pli etc. now i want to avail the benefit of this extra 50k in nps. what am i suppose to do . is it just showing my contribution in 800ccd 1 b will save me tax benefit over and above 1.5 lac.
and if i have to invest etc then how and where to deposit this money. i cant open double nps account.
plz clear my doubts
Thanks Dr. Brajesh. Glad you found the post useful.
Lets look at the technical points.
1. Under Section 80C (PPF, ELSS etc), you can claim deduction up to Rs 1.5 lacs. (For own contribtuion)
2. Under Section 80CCD(1) (for NPS), you can claim deduction up to Rs 1.5 lacs. (for own contribution)
Now Section 80CCE puts the following restriction, the total deduction under Section 80C, Section 80CCD(1) and Section 80CCC cannot exceed Rs 1.5 lacs.
3. Under Section 80CCD(1B), you are allowed an additional deduction for investment in NPS (For own contribution).
4. Under Section 80CCD(2), you are allowed additional deduction for investment in NPS (for employer contribution)
Now, in your case,
As I understand, you have invested Rs 2 lacs in Section 80C, Rs 75,000 in NPS (own contribution) and Rs 75000 from employer contribution in NPS.
Employer contribution of Rs 75,000 comes under Section 80CCD(2).
For Section 80C investment, you can get up to Rs 1.5 lacs.
For own contribution to NPS, you can claim under Section 80CCD(1B) upto Rs 50,000.
Yes, it is your discretion how you want to show NPS contribution. You can show it under Section 80CCD(1) or Section 80CCD(1B). You can even divide the amounts between 80CCD(1) and 80CCD(1B).
Merely showing it under Section 80CCD(1B) is enough to claim income tax deduction.
Dear Deepesh ji,
I appreciate your clear explanations on Section 80CCD(1B). As not many of we Govt employees are clear about the NPS contribution under 80CCD(1B).
As you have put it nicely that “it is our choice how we want to treat own NPS contributions. We can treat it under Section 80CCD(1) or Section 80CCD(1B). We can also treat our compulsory contribution under Section 80CCD(1B). We can even divide the amounts (our 10% contribution) between 80CCD(1) and 80CCD(1B) and merely showing it,i.e. our 10% NPS contribution, under Section 80CCD(1B) is enough to claim income tax deduction.”
Can you please give a govt. source or Swamy’s book reference for this explanation (showing 10% of our NPS contribution, totally or partialy, under 80CCD(1B)) . It is urgently needed for submission in our office.
I want a confirmation of my scenario as below:
PPF-1,50,000
LIC-1,50,000
NPS (my 10%)-1,20,000
NPS (govt 10%)-1,20,000 (exempted under 80CCD(2))
so do I get total exemption of 2,00,000 + 1,20,000 (exempted under 80CCD(2)), if I show 1,20,000 of my 10% NPS contribution (or only 50000 of it under 80CCD(1B)?
hope to get a quick response from you, thank you in advance 🙂
Srinivas
Hi Srinivas,
You can refer to Section 80CCD of the Income Tax Act.
I am copying excerpt for Section 80CCD (1B)
(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, whether or not any deduction is allowed under sub-section (1), of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:
Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).
You can infer that even contribution from salary can also be considered under Section 80CCD(1B).
But, you can face a practical issue. Your employer may consider your contribution to NPS under Section 80CCD(1) only. That may be because of IT software limitation.
But you need not worry. At the time of filing return, you can show the contribution under Section 80CCD(1B) and claim refund.
Yes, you will get Rs 2 lacs + 1.2 lacs as deduction.
You can show as much as you want under Section 80CCD(1B). The tax benefit will be limited to Rs 50,000 only.
Hope that answers the question.
thank you very much for your reply Sir, I was waiting your response…
regards
Srinivas
Srinivas, You are welcome. Glad you found the response useful.
Thanks for explaining in such a details. I am not investing this year, next year I will see if there is any further amendment.
Sure. Glad you liked the post.
Thanks Deepesh for this wonder post on NPS. I Still believe that NPS is good instrument to invest. Post one year of Retirement @ 61 your CTC is not there , so while widrawing corpus will not impact you much as you rebate tax regime during that time as well. Seems to me NPS is good for bracket 30..
Raman, you are welcome. You are right. If you can manage a lower marginal at the time of withdrawal and for annuity payments, it may sense to invest from tax perspective. If you can’t, it is essentially tax deferral.
There are other aspects that one should be mindful of. There are restrictions on liquidity. It is not suited if you want to retire early ( you will have to convert atleast 80% into annuity). And the regulators want to make NPS “One size fits all” solution. They want active management, exposure to REITs etc. NPS, in its first cut, is a good product. I fear the regulators will mess it up.
Hi Deepesh,
Thank you for the informative article.
Thanks Ramnath. Glad you liked the post.
Hello Deepesh
I am a government employee. contributing in GPF. I don’t have NPS account. this year I got some arrears and came in 20% tax bracket. To save tax I want to invest in NPS.(Rs. 50000/-). just want to clarify that if I invest in NPS this year, will I have to invest in this scheme every year essentially ?
Hi Raj,
Yes, you will have to invest every year. The minimum subscription per year is Rs. 6,000.
Deepesh ji, In which category or option we have to invest either tier 1 or tier 2
Raj,
Tax benefits are only for investment in NPS Tier I account.
No tax benefit for investment in NPS Tier II account.
Hi Deepesh Thanx for the help. One more thing I want to know
As the limit of my debit card is 40000/ and I have to make payment of Rs 50000/ . Can I make payment twice of Rs. 25000/ each or I have to make payment at one go i.e. of Rs.50000/ to take tax benefit. My bank is not enlisted in the NSDL list.
Pls suggest me
Hi Raj,
There is no restriction that you have to make payment in one go. You can invest in 10 installments. Entirely your discretion.
If debit card is accepted, then you can pay Rs 25K each on two days.
Thanks Deepesh for the detailed information . it was a true halp.
if there is no tax benefit on Tier II account,can i withdrew from Tier II account and how. In future I dont want to invest in Tier II account altogether, is it possible.
Yes,you can always withdraw from Tier II account. There are no withdrawals restrictions on Tier II account.
It is your choice if you want to invest in Tier II account. There is no compulsion.
For withdrawal procedure, go to the last question on the following link.
https://npscra.nsdl.co.in/all-faq-withdrawal.php
Deepesh Ji,
I am Government employee and I want to know that my total income is Rs.4,35,000/- per annum and I have invested Rs. 1,50,000/- under Section 80C Like LIC and PPF and Rs. 49,000/- have been deducted as NPS (10% deduction of employee contribution), can I claim tax rebate on this amount of Rs. 49,000/- excluding the exemption of Rs. 1,50,000/- saved under the LIC policy and PPF account.
Yes, you can claim tax deduction of Rs 49,000 under Section 80CCD(1B).
This is over and above Rs 1.5 lacs for LIC and PPF.
Hi deepesh
please let me know (i) if i should consider employer 10% contribution under NPS in my total salary while computing taxable income.
(2) is there a chance that Can i not consider it in taxable income and claim deduction under 80 CCD (2)
You need not worry.
Your employer will take care of it.
Either they will not show as part of your total income. That’s how it used to work with EPF (at least where I used to work)
If they do, they will give deduction under Section 80CCD(2).
Thank you
Hi Deepesh, today i am very interestingly reading your entire blog with all queries for my learning purpose ! I have also today started subscription of your extremely useful news letter ! Now here I want to say that just like our old days of EPF employee – employer contribution, now also he can claim 10 % NPS contribution of his employer straightaway while calculating / filing returns. Also his point No. 2 – this amount of employer contribution is not at all to be added in your income – simply deduction to be claimed just like erstwhile EPF treatment under sec. 80 c.
Kindly guide me if wrong / correct.
Thanks Hemant.
The approach is simple.
If the employer contribution to NPS is not part of your Form 16, you have automatically been given deduction for the same. Exactly like it used to happen with EPF.
If Form 16 shows the contribution, then claim under Section 80CCD(2).
Sir , my income is 8L and saving is 150000 . To take extra income tax rebate, in which NPS TIER1 or Tier2 ,i invest Rs50000 ? how much rebate to me ?
regards
Hi Rajendra,
First of all, it is not rebate. It is only deduction.
For tax benefit, you need to invest in NPS Tier I.
There is no tax benefit for investing in NPS Tier II.
Do not go by tax benefits alone. You need to see if there is place for NPS in your investment portfolio.
i m working in private institute and there is no nps scheme. I have opened my own nps account and contributed 50000 on my own, Am i eligible for tax benefit under section 80CCD(1b)?
Yes you are eligible for tax benefit under Section 80CCD(1B)
I”m working in Tamilnadu govt. In cps (like nps in central govt) scheme & I have contributed more than 50000. Am i eligible for tax benefit under section 80CCD(1b)?
Sir,
As I Understand, the extra benefit under Section 80CCD(1B) is only for investment in NPS and not any other pension scheme. However, if you want to get investment benefit under Section 80CCD(1B), you can open NPS account and contribute to it.
Great post. Clarifies everything so simply. Thanks deepesh . Please tell me what should I do for the additional tax benefit under 80CCD(1B) , having already taken the benefit under 80C for the mandatory nps contribution? Thank you
Thanks. Glad you liked the post.
If you are already contributing to NPS (mandatory contribution), you can contribute to the same NPS account for benefit under Section 80CCD(1B).
Please note deduction for NPS contribution is under Section 80CCD and not under Section 80C. However, under Section 80CCE, it is mentioned that tax benefit under Section 80C and Section 80CCD(1) cannot exceed Rs 1.5 lacs. That’s why investors consider NPS contribution under Section 80C. Just a technical point. You can ignore.
Now coming back to Rs 50,000 tax benefit under Section 80CCD(1B).
Even for the mandatory contribution, it is your choice how you want to treat it. You can even treat it under Section 80CCD(1B) too. Your employer might not agree but you can do it while filing your income tax return.
NPS and CPS are the similar schemes,isn’t it? In tamilnadu govt they are using the name contributory pension scheme instead of NPS..
I just checked. I think both are same. However, I cannot confirm this.
Sir, this is one of the best blog i have seen regarding tax planning and thanks for your kind help and advice. Sir, I m govt. employee in delhi and my savings are as follows: approx. Rs 94,000 (LIC,PPF,ELSS) and approx Rs 1,30,000 in NPS as my own contribution. Now my question is that can I take tax rebate of total Rs 2,00,000 after dividing some amount of NPS and combining it with LIC and all under 80C and rest Rs 50000 under 80CCD(1B). Please help me as our account officials are very adamant of taking of saving of only Rs 1,50,000 in my case. If possible please quote something for the same. Thanks in advance.
Dear Dr. Bhatia,
Thanks for the kind words.
You can claim tax benefit up to Rs 2 lacs in the following manner.
1. Rs 94,000 under Section 80C (for PPF, LIC, ELSS)
2. Rs 56, 000 under Section 80CCD(1) (for NPS investment)
3. Rs. 50,000 under Section 80CCD(1B) (for NPS investment)
You won’t get any benefit for remaining investment in NPS (1.3 lacs – 56,000 – 50,000 = Rs 24,000).
See, this is more of an operational issue. If their systems don’t allow so, they won’t be able to do it.
Don’t argue with them. Let them deduct excess tax. You can claim this amount while filing your income tax return.
Hope the answer helps.
thank you deepesh sir for the prompt reply. i think claiming the amount while filing the return is the best possible solution for this problem at present.
Yes
Thanks for your detailed explanation about NPS. I got my doubts cleared. Thanks once again.
You are welcome, Rama.
Sir
I am working at govt of tamilnadu and my saving is cps- 70,000, ppf and insurance-1,20,000. Shall I deduct 50000 from cps under 80 CCD(1b) in 2015/16?
If so, plz provide me the link or order copy for this deduction from the income tax department
Yes, you can do so. So, you can show Rs 50,000 under Section 80CCD(1B) and Rs 20,000 under Section 80CCD(1).
Alternatively, you can show Rs 40,000 under Section 80CCD(1B) and Rs 30,000 under Section 80CCD(1).
It is entirely your choice.
You can refer to Section 80CCD. I am copying part of Section 80CCD(1B)
(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, whether or not any deduction is allowed under sub-section (1), of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:
Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).
Most likely, your employer won’t agree to it but don’t worry. Think it is more a software limitation than anything else.
You can claim while filing Income tax return.
Sir they are saying that nps and cps are different and not accepting
I wouldn’t contest what they are saying. It is not about tax treatment.
If Contributory scheme you are referring to is not NPS, then it is not NPS.
If you are referring to the following scheme, then it is not NPS.
http://www.tngdc.gov.in/CPS_FAQ.pdf
I know I had said NPS and CPS look similar but I was not sure. I am not sure even now.
Deepesh, can the superannuation fund mentioned in clause vii of 80c be considered as contribution to NPS ? All this while there was no explicit section for NPS and our deductors considered nps contribution under this clause.
Shilpa,
I doubt contribution to superannuation fund will be considered as NPS investment. Before this year, 80CCD deductions came within the limit of Rs 1.5 lacs (through Section 80CCE). Hence, from the perspective of taxation, it hardly mattered where you were taking it.
Contribution to NPS comes under Section 80CCD.
Only last year, extra benefit of Rs 50,000 under Section 80CCD(1) was introduced.If you want the extra Rs 50,000 benefit, only NPS will do.
Sir, I am a J&K state govt. Employee . I want to know how I can avail extra tax benefits by investing Rs. 50000 in NPS . Our contributions to tier-I account are fixed. So how I can avail these extra benefits.
Pls reply sr.
Dear Parshotam,
Try this link to make online contribution.
https://enps.nsdl.com/eNPS/LandingPage.html
For FAQs on the subject, go through the following link.
http://npstrust.org.in/images/FAQs_eNPS.pdf
those making payment thru eNPS Portal better be aware that there will be 3-4 days lag in amounts getting credited to your account. And the worst part is that you shall be allotted UNITS on basis the NAV on the given date and not as per the NAV on date of payment.
Thanks Venkatesh for pointing this out. I had no idea.
This is something investors should be aware of.
With payment through POP, do you get NAV of the same day?
Hi Deepesh
There was an article in ET which said that 33% of the corpus will be tax exempt on maturity. Taking ex of 1 crore maturity value, if you put away Rs 50 lakh as annuity, you also get Rs 33 lakh exemption. Hence taxable amount is balance Rs 17 lakh. At highest tax rate, you have to pay around Rs 5.2 lakh. Is this correct?
Hi,
The jury is still out on the subject. I think you are referring to a write-up from Manoj Nagpal almost an year back.
I have considered that aspect in one of my earlier posts on NPS.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-on-maturity/
Would suggest you consider the worst case tax scenario before deciding to invest.
Thanks Deepesh, this was indeed helpful!
You are welcome, Manish.
Hi sir I want to know in income tax sec 80ccd lic pension plans and other life insurance pension plans are considering or not?
Hi Anand,
For LIC pension plans, the deduction is under Section 80CCC.
As per Section 80CCE, the total benefit under Section 80C, Section 80CCC and Section 80CCD(1) should not be greater than Rs 1.5 lacs.
Dear sir,
I am mp. state govt. employee .can i take IT exemption of state govt NPS contribution in my IT deduction u/s 80CCD(2) without adding this into my total salary income.
Dear Rupesh,
You don’t have to worry on this front.
If your employer shows it as part of total income, it will automatically give you deduction under Section 80CCD(2).
If your employer does not show it as part of total income, there is no need.
You cannot take double benefit.
If your employer does not show its contribution in your salary, that means it has already considered it as deduction under Section 80CCD(2). You cannot take the benefit twice.
Dear Deepesh
Would like to thank you for the clarity on this subject. Have never ever invested in any pension fund but with tax relief announce in the 2016 budget am contemplating to do so in NPS. Have understood that 40% of the fund will be utilized for purchasing annuity. Have 15 yrs to go before I am 60. Wanted to know typically for an investment of Rs 50000 pa till I am 60 approximately as per what is known today, what monthly return would I get as pension. I invest in Mutual funds currently and plan to take the corporate bonds option for NPS.
Dear Anupam,
Glad you liked the post.
The latest budget proposes to exempt 40% of maturity corpus.Annuity income is still taxable.
So, if you convert the entire NPS corpus to annuity, you won’t get any tax relief.
The tax relief is only for lump sum withdrawals.
http://www.personalfinanceplan.in/opinion/40-of-nps-maturity-amount-is-exempt-from-income-tax/
A minor digression. NPS and annuity are two different things. With NPS, you accumulate a corpus. Then you use the corpus to purchase annuity (or pension). It is your choice how much NPS corpus you want to use for purchase of annuity. The minimum is 40%.
There is no guarantee on the interest rate on annuity that you will get after 15 years.The interest rate will also depend on the kind of annuity you opt for.
So, can’t really comment on the monthly income you will be able to generate from your NPS corpus.
Assuming NPS returns 10% p.a., Rs 50000 per annum for 15 years will become Rs ~17.47 lacs at the end of 15 years.
Assuming you choose to convert the entire corpus to annuity and the prevailing interest rate for annuity for life is 6% p.a., you will get Rs 1.04 lacs per year from the pension plan. For monthly income, you will get around Rs 8,500-9,0000 per month.
Hope this answers your query.
Thanks for giving clarity of this topic in very simple terms.
You are welcome.
Suugest you go through the following post too.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
It takes into account latest budget announcements.
Dear Deepesh Sir,
I am in state government service and retiring after 2 years.
I want to invest Rs.50000/- in NPS under 80CCD.
Can i withdraw this Rs.50000/- after after retirement and how????
One more thing, how to invest ?
Yes Vimal Sir.
You can do that.
Please go through the following link. You will get the idea.
https://npscra.nsdl.co.in/faq-withdrawal.php
You can find out the list of points of service at this link.
Walk into the branch with KYC documents. You should be through.
Sir, I am aged 43 years, and in 30% income tax bracket, working in private sector. Is it worthwhile to consider NPS for retirement pension, at 43, considering that beyond age 50 working in private sector will be quite tough..I mean staying competitive and sustaining the job? Pl share your views on the same. Thanks
Dear Prashanth,
Don’t I have a crisp answer.NPS has many issues. However, it faces a favourable tax regime. So, you need to weigh.
Do note if you have to exit before retirement, you have to use atleast 80% of purchasing annuity. Secondly, the lump sum amount won’t be tax-free either.
Annuity rates are typically quite low, much lower than even FD rates. Would advise you to have a look at my post on PPF. How to use PPF as pension tool. http://www.personalfinanceplan.in/opinion/how-to-use-ppf-account-as-a-pension-tool/
However, if you have to buy annuity for retirement, NPS is as good or bad. Tax incentives make it a bit better than other pension products.
I put out a post yesterday with tax changes proposed in the budget. You can go through the following post.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
If i invest in excess of 50,000 p.a for which I do not claim any deduction, will I get deduction on withdrawal or the annuity to the extent of the amount on which I have not claimed any deduction? Logically I should get a deduction for the amount which I have already offered for tax.
No. At the time of maturity, it does not matter whether you took tax benefit at the time of investment. You will be taxed the same way (if you had availed tax benefits).
With tax rules, it does not work that way. It will be an operational nightmare.
And this is nothing new. You invest your post-tax income in FD and pay tax on interest too.
You can go through the updated post on NPS taxation (after recent budget proposals)
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
Say for example, I invest Rs.2 lac and claim a deduction of Rs.50,000. I happen to retire next year by which my corpus value is Rs.2,20,000. Suppose I withdraw 60% of the corpus value which is 1,32,000. I cannot be taxed on entire 72,000 right (60% of 1,32,000)? That would clearly be double taxation. Taxable amount on both withdrawal and annuity put together should be restricted to untaxed portion (deduction claimed earlier) of the principal plus the interest.
Narayan, it does not work that way. It is immaterial whether you claimed tax benefits on investment in the first place.Do go through the following post.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
If you maturity corpus is Rs 2.2 lacs. You can withdraw 40% i.e. 88 lacs tax-free.
You must purchase annuity for atleast 40% i.e. 88 lacs. Annuity income will be taxed in the year of receipt.
If you withdraw 60% as lump sum, 40% is tax-free. Remaining 20% (Rs 44,000) will be taxed at you marginal income tax rate.
Deepak, this is like saying entire EMI paid to the bank (including the principal portion) should be taxed. Annuity is not an income. Only the interest portion of the annuity can be treated as income. This is clearly double taxation and against the canons of taxation. And in case of Bank FD only the interest earned gets taxed not the principal payment.
Btw, I am Deepesh.
The Government has been quite clear. NPS is EET. You pay the tax on maturity. Huge relaxation in the latest Union Budget.
You get the tax benefit upfront on investment in NPS. In your case, it is just that you can not availing tax benefits. If you want to optimize taxes, invest only 50K.
In case of FD, you created FD with post-tax income (I am not talking about 5-year FD). So, essentially, you paid tax on principal upfront and on interest as and when you earn.
You can double taxation in many case. When you restaurant bills from your post tax income, you pay service tax.
You pay capital gains tax on redemption of investments purchased through your post tax income.
It is a policy decision. And in my opinion, it is quite fair. Don’t see anything wrong with it.
And they have told this upfront. If you don’t like it, don’t invest in it.
The whole issue is very relevant. The basic principle of EET regime is to tax income that was untaxed earlier. And under that principle, one can only be taxed to the extent of earlier untaxed income as far as principal repayment goes. Interest can be fully taxed. Withdrawal and annuity includes a portion of principal repayment also which can be taxed only to the extent of any deduction claimed earlier. Taxing the entire amount is clearly against principles of canons of taxation. No governing authority can ignore this principle. Basis this logic, why not start taxing the banks and FIs the entire EMI they collect including the pricnipal portion collected and lets see the reaction.
Banks do not get tax benefit on giving you loan.
See, this is the law of the land. As long as there are no advserse policy flip-flops, I am ok.
I know before investing what I am getting into. If I like, I will invest. Otherwise, I won’t. Simple.
i want to know when 80cce limit is 1.5 lac then is it that 80 ccd 1b also come under this and total limit of 80 c + 80ccc +80ccd1+ 80ccd1b =1.5 lac
OR
it is 2 lac??
Hi Rahul,
Section 80CCE does not cover Section 80CCD(1B)
80C + 80CCC + 80CCD(1) = Rs 1.5 lacs.
Limit under Section 80CCD(1B) is over and above Rs 1.5 lacs.
So, it is 2 lacs.
hi, thank you sir for replying, please clear one more doubt,
is it compulsory to show employee contribution towards nps first in 80 ccd1 i.e. only after exhausting its limit we can claim in 80 ccd 1b by investing more in nps or we can avail deduction alone in 80ccd 1b, as 1.5 lac in ppf in 80 c and 50k in nps in 80 ccd1b leaving 80ccd1 blank.
There is no such restriction. Yes, you can do that. Rs 1.5 lacs in PPF and Rs 50K under Section 80CCD(1B).
Your employer may not agree and still deduct additional tax.
You can claim refund while filing income tax return.
Deepesh, you cannot mix direct and indirect tax. Direct Tax can be levied on the portion on which deduction was claimed earlier plus the interest income but nothing more. Under no circumstances you can be levied direct tax on the same income twice. Capital gains tax is paid on the capital appreciation and that too after factoring in the impact of inflation and not on the original capital investment. You give me one example where taxed income gets taxed or where the principal portion gets taxed. This is the basis on which direct taxation works. You can levy income tax only on Income and as per the Act, the principal portion which has already been offered for tax does not fall under the definition of income. This is not a question on whether to investment or not. I am sorry I might be arguing in the wrong forum. And I am not against EET logic. But I will criticize something which is against the principles of direct taxes. It is not fair. Assume, if you give deduction of 50% on loans advanced by Banks, do you think you can charge to tax entire 100% of principal collected by them? Try doing that and you will see the so called experts talking about principles and canons and what not.
Narayan,
I don’t agree much. But we can always agree to disagree.
You are right. This is not the right forum for such discussion.
Perhaps, when you are in Mumbai next, we can catch up and discuss and debate in detail. 🙂
Thanks for bringing out these points. Your arguments made this post richer.
Thanks Deepesh
what is the purpose of rebate under section 88 when certain of those deductions are already available in 80C? Can we benefit from both?
As I understand, Sec 88 is legacy of the past when rebates were common. It is inconsequential now.
You cannot benefit from that.
Sir, I am a central Govt employee and joined job before 1.01.2004 ie not contributing towards NPS. how can i take additional tax benefit of Rs. 50000/- under NPS scheme.
Sir, I am a central Govt employee and joined job before 1.01.2004 ie not contributing towards NPS. how can i take additional tax benefit by investing Rs. 50000/- under NPS scheme.
Dear Arun,
Open a NPS account and invest Rs 50,000 in it. And you are done.
Sir your article is awesome. Most of the doubts are clear after reading all the queries and replies. But i hav a small doubt in my mind. I m also a govt employee working in psu. I have already shown savings of 1.5lacs (ppf) for tax saving. Now my contribution in nps for this finincial year is coming approx 44000/-(my contribution). Can i claim additional tax rebate on this sum of nps or i hav to make my cintribution over and above 50000/- to get the benifit. Means can i get the tax benifit as
1.5lac – 80c
44000- 80ccd
6000- lic policy contribution
Total 2 lacs
If not how can i contribute additional 6000 which is left in my limit of 2 lacs in nps?
Waiting fir your reply sir
Thanks Prashant. Glad you have been liking the posts.
You can claim Rs 1.5 lacs under Section 80C for PPF investment.
You can claim Rs 44000 under Section 80CCD(1B). It is your choice how you want to treat it under 80CCD(1) or 80CCD(1B).
Since 80CCD(1) comes within overall limit of Rs 1.5 lacs, there is no point claiming it there.
So, claim under SEction 80CCD(1B) for greater tax benefit.
You can not additional Rs 6,000 for LIC policy premium since your 80C limit has already been utilized.
So, total tax benefit of Rs 1.94 lacs for you.
If you want more, invest Rs 6,000 more in NPS.
Sir,
I am working in a private co and have 7 yrs service left. My spouse is housewife and son is doing graduation. If I contribute in NPS in the name of my spouse or son, can I have IT benefit on the contribution amount of Rs.50K. Kindly guide.
You must invest in NPS in your name to get the tax benefit.
Hi Raghaw,
I have a question reg your calculation: ”
NPS is essentially tax deferral. You pay tax now or at the time of retirement. For instance, you invest Rs 50,000 in NPS for 15 years. You are in the highest tax bracket. In 15 years (at 10% p.a.), the amount will grow to Rs 17.47 lacs. If your marginal tax rate is 30%, you will get Rs 12.07 lacs post tax.
On the other hand, if you pay tax on Rs 50,000 every year and invest the remaining Rs 34,550 in any instrument that gives tax-free return of 10%, you will end up with same Rs 12.07 lacs. ”
In case 1 scenario where i invest 50,000 in NPS for 15 years, i also get 30% tax reduction on 50,0000 invested per annum which comes 15,000 and becomes 225,000 i 15 years, should not be this amount accounted for ?
Hi Amit,
Correct comparison should be 50,000 under NPS and 34,550 under non-NPS.
You can’t compare Rs 50,000 under NPS and an additional Rs 15,000 savings against Rs 34,550 under non-NPS.
That is double counting.
Thanks Deepesh.
Thanks for all the prompt and clear replies. If I invest under 80CCA and 80 CCB, can I get a deduction of over and above 2 lakhs. Can you tell me which are these approved instruments under these sections. Also kindly advise if it is wise to invest under these.
Ignore the two sections. No additional tax benefit.
Will we get the same tax treatment for investing 50,000/- in next financial year, i.e. Fy 2016-17.
Suppose i invest 50,000 after 1st april 2016 will it bring my toatl tax exempt income to 2.00 lacs.
Secondly, Do we have to invest (in case of voluntary contribution)before any particular as in case of PPF.
Yes, benefit under Section 80CCD(1B) is available for next year at least.
You must invest before March 31, 2016 to take tax benefit this year.
Thank You Very Much.
Sir,
I am working in a private co and have 7 yrs service left & 30% income tax bracket,no job gaurantee. My spouse is housewife and daughter doing graduation and son is study . If I contribute in NPS in the name of my spouse or son, can I have IT benefit on the contribution amount of Rs.50K. Kindly guide.
As I understand, for benefit under Section 80CCD, you must contribute in own name. You cannot take tax benefit by investing in name of your spouse or son.
hiii, i am a 60 plus individual, i have already invested in ppf, now i want to invest in NPF, in my son’s name, will in get additional deduction of rs 50000
Dear Sir,
As I understand, you won’t get benefit for investing in NPS in your son’s account.
Hi I am in bracket of 30% tax bracket, I am fully using 80c & 80D rebates what extra should I do to save tax plus importantly should I invest in NPS to save tax.
Dear Leena,
There are many posts on my website which you can look at. i have copied links to some of them below.
http://www.personalfinanceplan.in/opinion/15-lesser-known-income-tax-deductions/
http://www.personalfinanceplan.in/taxes/how-to-save-income-tax-part-i-tax-exempt-allowances/
Yes, NPS is an option you can explore. It can give additional tax benefit of Rs 50,000 under Section 80CCD(1B).
my salary slip shows has medical allowance component plus transport allowance do I need to show anything to show this
for 80d I am confused as I have medical ins premium paid amounting to 7000 & 5000 cash medial bills.
For 80CCD(1), you can do it at the time of filing return. For medical and transport allowance, your employer may ask you to submit proofs. For conveyance allowance, they don’t but might ask for transport allowance. Medical receipts will be covered under medical allowance.
Submit copy of premium receipt to your employer.
Hi Deepesh,
Thanks for the post and your responses to the queries. I have following queries on NPS:
1. I’m working in private sector. I understand there are two ways to save tax under NPS – one is through employer contribution that is tax free up to 10% of the basic salary (not sure which IT section this falls under) and another is through employee contribution of upto Rs 50,000 under 80CCD(1B). Please confirm whether I can claim NPS tax exemption under both these schemes? It may come to around Rs 1,00,000 annually
2. Is it essential to opt for both employer and employee contribution at the same time? Or can i choose just one of them if I so desire?
3. Another generic query I had is – off late govt. seems inclined to make NPS popular, as we saw in last budget additional deduction was made available and in this budget there is benefit in terms of 40% withdrawal being tax free. Possibly there could be further incentives to make this scheme more popular, but again we can’t be sure, especially if govt changes it can even make rules more stringent. What is your suggestion about NPS in general, especially in light of the fact that I already invest in PPF and EPF – is another pension product like NPS useful or it may be better to opt for MF through ELSS mode?
Thanks a lot for your time!
Thanks. Am glad you liked the posts.
Please do share with friends and family.
For better clarity on NPS taxation, please go through the following posts.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
http://www.personalfinanceplan.in/opinion/common-doubts-about-nps/
This should answer Question 1 and 2.
3. You are right. There is no point speculating over policy decisions. Who knows even long term capital gains on equity mutual funds may start getting taxed in a few years.
This is a subject matter of a complete post. 🙂 It depends on your specific case. Some people can manage money better than others. They can make smarter financial decisions than others. If you are one of them, you can easily do without NPS. Of course, there are tax benefits that you need to consider.
Each product has its pros and cons. So, there will never be a crisp answer. Revisit your balance sheet and see if NPS deserves a place.
I had written a post on on how you can use PPF as a pension sometime back. You can go through the following post.
http://www.personalfinanceplan.in/opinion/how-to-use-ppf-account-as-a-pension-tool/
There are limitations wit this approach but it is good to be aware
When it comes to MF, you need to look at asset allocation.
If there were no excess tax benefits to NPS, I wouldn’t consider NPS at all. I feel I can manage with EPF, PPF and ELSS,FDs, regular MF and other more liquid instruments. Depends on you if you can.
Deepesh, thanks for the early replies. Can you suggest if RD is better or SIP? What are the risks in Sips?
Nothing is better than the other. If you are saving for 2-3 years, RD is better. If you are saving for a goal that is 7-10 years away, equity fund SIP is better. I assume you are talking about SIP in equity funds.
RD is a debt product. Returns are known beforehand.
Equity fund returns are market linked. You may even suffer capital loss.
Thanks, that was quite clarifying. But, by SIPs, I mean the mutual funds, like sbi mf, etc… Does that make it a better investment ?
MFs come in many variants. Equity MF is a variant of MF. Even SBI MF has many types of mutual funds. Would suggest read up a bit on mutual funds.
Hello Deepesh,
Thank-you for the article. That was exhaustive.
But, I have a question regarding the payment gateway charges that I checked in the eNPS website. It says, 0.60% transaction charge + service tax @ 14.5%.
So, If I invest INR 43500/-, the final amount would be around 50000/- including the charges & taxes.
My question is, will I be given a tax exemption for 43500/- or for 50000/- ?
Thanks in advance.
Hi Krishna,
Arre, this way the entire logic of investing in NPS will be defeated ( I am talking about tax saving)
It is Rs 0.6 + 14.5% service tax on Rs 0.6. So,essentially, we are talking about 70 pause (and not Rs 6500 that you have mentioned).
You will have to pay Rs 50,000 and 70 paise. So, relax 🙂
There may be some convenience charge levied by your bank. Don’t know what that amount will be. You can check while making payment.
Only the amount that goes to NPS will be counted.
Hello deepest. Can you explain what are debt products? Also please give some examples of debt products and which of them are most tax and investment efficient ?
There are many types of debt products. Fixed deposits, recurring deposits, PPF, EPF, debt mutual funds, corporate bonds. corporate FDs, Government securities are all types of debt products only.
Is ELSS also a debt product?
No. ELSS is a type of equity mutual fund. Full form is Equity linked savings scheme.
I had invested in Tier I and Tier II, before the government announced tax benefit. After reading fine points, i found only if you spend full 50000 in Tier I, the tax benefit is applicable. No tax benefit if it is in Tier II. Please clarify.
Dear Vinay,
There are no tax benefits for investing in Tier II NPS account.
Dear Deepesh,
I am a Bank employee. I have already utilised full limit of Rs 1,50,000/- under Sec 80C from housing loan, PF deduction, Insurance etc. I am a pension optee in the Bank. Now, I want to invest Rs50000/- NPS. Please clarify Sir, Whether I can claim tax benefit under sec80CCD(1B) for this 50,000/-
Dear Hanumant,
Yes, you can claim tax benefit for investing in NPS under Section 80CCD(1B).
Dear Deepesh, thanks for such a nice post. I have a query on NPS. I am an IT employee and my Organisation doesn’t give any tax exemption option under NPS. I know that as an individual I can opt for NPS account from a bank(say ICICI) and deposit 50k. Can I get tax benefit on this 50k over 150k of 80C while submitting ITR, even though my employer doesn’t give tax exemption.
Dear Shyam,
i am glad you liked the post.
Please do share with your friend on family.
As I understand, your employer does not offer NPS.
Yes, you can open NPS account on your own (with ICICI Bank) and invest Rs 50,000 to claim extra Rs 50,000 tax benefit.
You can show the proof of this investment. The employer will also entertain. But I think it is quite late now.
In that case, you can claim while filing ITR.
You can open NPS account online too. Do go through the following post.
http://www.personalfinanceplan.in/financial-planning/how-to-open-nps-account-online-using-aadhaar-card/
Thank you so much Deepesh for clarification. much appreciated 🙂
You are welcome, Shyam.
Please do share the post with friends and family.
Am not related to financial aspects, but I understand this.
Lets assume I invest in Mutual Funds/Stocks say for 20 years till retirement (assuming 40 yrs old) or 30 years till retirement (assuming 30 years old) + 50K per year in NPS. Also assumed am in the highest tax bracket. Now at the time of retirement, I have the following income etc:
1. Dividend (not taxable till 10 L per year. Even it is more it is only 10%)
2. Long term capital gains my selling MFs, not in lumpsum, but according to my need (Again this is not taxable)
So income from NPS, assuming I take out less than 5 lakhs per year will not be taxable, right?
In this case I can avail (assuming I do not have any other income):
10 L – From Dividend
Any amount from selling MFs/Stocks
5 L from NPS account – Without incurring any income taxes.
Or did I miss something here?
Yes, you are right.Long term capital gains from sale of stocks and equity MF and dividend from equity MFs are tax-free in the hands of investors (atleast for now).
Just a minor correction. Minimum tax exemption limit for senior citizens is Rs 3 lacs (and not 5 lacs).
SO, if you can manage within the limit, limited tax liability for you.
Thanks for putting it in a succinct manner. Completely agree with your point, the spirit behind the NPS is right, but the product needs some solid evolution. Till then, an investor is better off looking at other options.
Thanks Kamal. Yes, the spirit is right. We need market forces to make annuity payments better.
Greater flexibility to use the money as you wish may be appreciated by some.
On a lighter note, with financial products, evolution can be detrimental sometimes. 🙂
And I do not always trust regulators.
Hi Deepesh,
Your site is very informative. Thanks for creating this forum as it helps to clarify lot of our doubts. However, I do have doubts regarding NPS.
1. Charges are deducted every time you contribute to NPS. Say I invest twice Rs20000/- and Rs.30000/- in NPS in a FY (only my individual contribution). The amount which got invested in NPS is Rs.19000/- and Rs.29000/- respectively after deducting charges (hypothetical amount for easy understanding). What amount should I claim for NPS under sec 80CCD(1B) , my contribution or the net amount which has gone into NPS?
2. With reference to my employers contribution to NPS, can I show the entire amount that they contribute under sec 80CCD(2) for tax deduction or whether it is subjected to a certain limit like a % ( basic+hra), i.e employer contribution or the limit whichever is lower?
3. If my contributions are 1.5lac (PPF+LIC), 0.80lac (NPS – individual contribution), 0.70lac (employers contribution to NPS), what would be my total tax deduction that I can cliam?
1.5lac sec 80C +0.50 lac sec 80CCD(1B)+ 0.70lac sec 80CCD(2) = 2.70 lac
( I have assumed that their is no cap to the employers contribution)
Thanks in advance.
Dear Shreekala,
Thanks for the kind words.
Please do share this post or any other post that you liked with your friends and family.
1. As I understand, it is only the amount that gets invested in NPS Tier-I account. Ancillary charges wouldn’t be considered.
2. There is cap on tax benefit for employer contribution under Section 80CCD(2). It is 10% of (Basic + DA).
Please do go through the following post.
http://www.personalfinanceplan.in/opinion/common-doubts-about-nps/
3. Employer contribution is typically automatically adjusted in your salary. So, you don’t have to show it.
Rs 1.5 lacs (Section 80C) + Rs 50,000 for NPS investments (Section 80CCD(1B) + Lower of (Rs 70,000, 10% of basic + DA) for employer contribution to NPS
Thanks Deepesh for your prompt reply. I just tried entering the amount of Rs 50000 under sec 80ccd (employees/self employed contribution) row in ITR-1 SAHAJ excel form for AY 2015-16. The total amount had exceeded Rs 2 lac however, the eligible amount for deduction under chapter VI A was still Rs.1.5 lac.
The additional Rs. 50000 benefit of NPS is not getting picked up in the excel sheet. Ultimately, we need to submit this ITR 1 for claiming the refund to take the benefit.
So, kindly request you to guide me in this matter.
You are welcome, Shreekala.
Two points:
1. Additional tax benefit for NPS under Sectio 80CCD1B) is from FY2016 (or AY2017). So, you cannot try out in older forms. Do it for this year’s excel form (when it becomes available)
2. The additional tax benefit is under Section 80CCD(1B).
Would suggest you seek services of a CA while filing your returns.
Thanks Deepesh. You were really helpful. Will surely remember while filing the returns.
Thanks for all the prompt and clear replies deepest. Please tell me , if I am to choose between a debt MF or an ELSS MF , how do I distinguish the two? Is it mentioned in the offer scheme? Which one is a better investment? Are the maturity proceeds of debt MF also are tax free?
You are talking about two very different things. Debt MF is a debt product while ELSS is a variant of equity mutual fund.
For taxation of mutual funds, request you to go through the following posts.
http://www.personalfinanceplan.in/mutual-funds/mutual-funds-growth-or-dividend/
http://www.personalfinanceplan.in/mutual-funds/pfp-primer-all-you-need-to-know-about-debt-mutual-funds/
http://www.personalfinanceplan.in/opinion/should-you-invest-in-elss-or-ppf-for-tax-saving/
Will give you idea.
There are many resources on the web which you can use to check MF performance. I like ValueResearchOnline and MorningStar the best.
You need not refer to scheme information document to find out. You can easily find out from aforesaid sites.
Maturity proceeds of debt funds are not tax-free.
Which one is better, there is no crisp answer. Depends on your financial goals.
Suggest you seek professional help if you want to invest in mutual funds. You can take professional help now and develop our knowledge over the coming years and become a Do-it-yourself investor later.
Dear Sir ,
Very nice write up, I have a doubt , how much should i invest in tier 1 and tier 2 for saving that extra Rs50,000. please reply..I want to avail this facility this year itself.
Thanks Mahalakshmi. The tax benefits are only for investment in Tier-I NPS account.
Nice article..just what is needed at this time. Just one clarification. The 40% of the amount invested in Tier 1 NPS will be used for buying an Annuity at age 60. This amount is tax free. The balance amount of 60% can be withdrawn in 10 installments with payment of prevalent taxes. The annuity will be paid till the person passes away. What happens after that? And will there be specific annuity plans which a person will have to buy or it can be bought from the market? Kindly inform. Thanks.
Dear Shalini,
Am glad you liked the post.
Please do share with friends and family.
The entire amount used to purchase annuity is exempt from income tax. However, annuity income will be taxed in the year of receipt.
The latest budget proposal relaxed the taxation for even lumpsum withdrawals. Now, 40% of the accumulated corpus can be withdrawn tax-free.
The tax rules for NPS have become more benign since I wrote this post.
Request you to go through this post to get better idea about NPS taxation.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
http://www.personalfinanceplan.in/opinion/common-doubts-about-nps/
All other rules are same and can be used to avoid tax liability.
For annuity plans available, please go through this post
http://www.personalfinanceplan.in/opinion/annuity-options-under-nps/
Im working since 1985 in an govt aided school in Goa. I have already invested 1.5 lakhs under 80C. CAN I INVEST AN ADDITIONAL 50,000 UNDER SEC 80CCD(1b)
Yes, you can and avail tax benefit under Section 80CCD(1B).
Can i open nps account for my wife and claim tax benefit foe self
Hi Aditya,
You must open the account in your name.
Hi Deepesh,
I just got my NPS account opened and awaiting the kit. Had planned to invest 50K to get additional benefit over and above 1.5L of 80C. Now I understand that if I don’t invest 50k but less like say 40k or 30k in NPS then I will not get any benefit under 80CCD(1B). also, the benefit is accommodated in 80C (which is 1.5Lakhs) instead if needed. Is this true that you need to invedt 50k compulsory to take the benefit. Would appreciate your guidance on this query.
Hi Dhiraj,
No, there is no such restriction. You can invest any amount. The tax benefit under Section 80CCD(1B) is capped at Rs 50,000 per financial year. You can invest Rs 30,000 or Rs 40,000. You will get tax benefit on the amount invested subject to a cap of Rs 50,000.
This benefit of Rs 50,000 is over and above benefit of Rs 1.5 lacs under Section 80C.
I have one query. I am working in a PSU and 3000 rs per month is deducted in NPS from my salary. I have already invested 1.5 lac in ppf to get tax benefit under section 80C. so can I use my monthly nps deduction under sec 80CCD1(b) which gives extra benefit of 50k. ??
Yes, you can do that.
Hi Deepesh Bhaiya. Was scrolling through NPS articles since i had been coerced into investing in NPS by my bro already, n I thought I should better read up on it now. Read many articles, and only after reading this article ( which I found most helpful) did I care to see the authors name. And bingo, it was u. Ur blogs are pretty useful for financial illiterates such as me. Thanks.
Thanks Nidheesh!!!
Glad that you liked the posts.
I know. He told me.
Call me if you have any doubts or need more information. Take my personal number from Konark.
Can u pls leave your no, I need to clear a few doubts.
Regards
Dear Major Rohit,
Please understand the contact number is only for business enquiry.
Request you to drop your query in the comments section.
If you do not want to share the details in the comments section, please drop an e-mail to support[at]personalfinanceplan.in
Sir, I already have more than 1.50 lacs under 80c. I have invested nps 50k (no employee part) tier-I. which column I have to show for 50k. If I shows in ITR-1 5(C) 80 CCD (Employees / Self Employed Contribution) total deductions not reached to 2lacs, 5(d) 80 CCD (Employers Contribution) then it reached to 2lacs. what I have to do?. thanks sir.
To file income tax returns, please consult a chartered accountant or a tax consultant.
You can claim your NPS investment under Section 80CCD(1B).
Section 80CCD(1B) has been introduced this year only. So, quite possible you are looking at an old form.
Your CA will assist you in filing IT return.
Hello Deepesh,
Thanks for your wonderful article. Its very clear and concise.
I know its only 3 days to go. Can i successfully subscribe and get the account opened before 31st of this month through eNPS. i have my aadhar card with correct address details.
If this whole process takes more than 4 days, then its no point in trying it out.. isnt it?
Thanks,
Chandan
Hi Chandan,
You are welcome. Am glad you found the post useful.
You can try it. If the payment goes through, you are invested.
You don’t need 4 days. It is hardly half an hour job.
From what I have heard, sometimes your payment fails and then you are stuck for a 7-10 days.
Do go through the following post and the comments.
http://www.personalfinanceplan.in/financial-planning/how-to-open-nps-account-online-using-aadhaar-card/
You will get some idea.
Hi Deepesh,
Few questions.
1) If my Basic + DA is 2 lakh/annum then is it I will get tax benefit for 10% of the amount or I can pay 50k and get the benefit for 50k under 80CCD.
2) I don’t want my employer to deduct anything on this behalf…I want to open it on my own… is it possible.
3) Say this year I have enough cash and I invested 50k but next year if I am short of cash then can I invest only 20k? is it possible or every year I need to invest fixed amount
regards,
Sundaresh
Hi Sundaresh,
1. In that case, you can avail up to Rs 20,000 under Section 80CCD(1) and Rs 50,000 under Section 80CCD(1B). Maximum Rs 70,000 in total for own NPS investments.
2.If your employer does not offer NPS, you can always open on your own. Do remember you cannot open two NPS accounts. If your employer has already opened one for you, you must contribute to the same NPS account.
3. Yes, you can do that. Minimum contribution is Rs 6K per annum. There is no compulsion to invest fixed amount every year.
Hi Deepesh,
That’s a quick reply 🙂
Thank you for clearing my doubt. One more question.
I am in private firm. Say if my current employer opens me a NPS account then as you mentioned above 20k there and plus 50k from my side. That’s fine.
Now I will move to some other company where the new employer does not have this facility. then what happens?
Tier 1- employer
Tier 2 – employee right
thanks in advance
Sundaresh
Hi Sundaresh,
Just think about it this way. It is your NPS account (does not matter who opens it).
Employer only contributes to the account.
Even if you shift, you can keep contributing to the same NPS account.
Both Tier-I and Tier-II accounts are yours only. Employer will always contribute to Tier-I account.
Only contribution to Tier-I NPS account are eligible for tax benefits. Hence, you must contribute to Tier-I account only.
If you contribute to Tier-II account,you wont get any tax benefit.
http://www.personalfinanceplan.in/opinion/common-doubts-about-nps/
Hi Deepesh,
Thank you. Going through the link. Will revert on having a question. Thanks a lot again.
Regards,
Sundaresh
Hi Deepesh,
That means whatever the employer contributes that will be a part of 80c?(like the pf contribution which is part of 80c)
regards,
Sundaresh
Hi Sundaresh,
Employer contribution is not part of 80C. Only your contribution is.
It is just that employer contribution is not included in your total income. Infact many employers may not even show their NPS contribution in your Form 16. So, you autmoatically get benefit for employer contribution.
Yes, it is like EPF contribution. Even in EPF, employer contribution is not part of 80C.
Hi Deepesh,
Got it. Thank you very much. Very informative…saved this website in my favs.
Do you have any blog/page for Sukanya samruddhi yojna? Have no idea on that. Would like to know more on it as well.
Regards,
Sundaresh
Thanks Sundaresh. Please do share the posts and website with friends and family.
I have a few posts on Sukanya Samriddhi Yojana. Just that the interest rate has been changed from 9.2% to 8.6%.
I have not updated the posts yet. So, you will have to make the mental adjustment yourself.
http://www.personalfinanceplan.in/opinion/sukanya-samriddhi-scheme-should-you-invest/
http://www.personalfinanceplan.in/financial-planning/sukanya-samriddhi-scheme-revisited/
http://www.personalfinanceplan.in/product-review/government-cuts-ppf-interest-rate/
Thanks Deepesh, That’s helpful.
Can some one suggest what if there is a difference in NPS last name and PAN card ..can it still claimed fro income tax
Hi Megha,
This shouldn’t have happened in the first place. Name in the investment and PAN should be name. Unless you changed name in the PAN for some reason.
I am not a legal or a tax expert.
In my opinion, you should claim the tax benefit (since you have made the investment). Even in case of scrutiny, you should be able to get through by producing an affidavit.
There should be legal workaround somewhere.
I would also suggest get the same name (as in PAN) across your investments.
I want to Know tax can be saved in NPS if NPS opened on the name of spouse
Hi Sunil,
As I understand, NPS investment has to be in your name. You won’t get any tax benefit for investing in NPS in the name of the spouse.
What is last date to avail tax benefit FY2015-16 in nps
You must invest on or before March 31.
Thanks for reply.
Sir can you plz help that any online website. For nps investment.
Vishal, first make sure you want to invest in NPS. NPS should fit your financial goals. Don’t invest just to save taxes.
After that, if you feel you should go ahead with NPS, try following link
http://www.personalfinanceplan.in/financial-planning/how-to-open-nps-account-online-using-aadhaar-card/
It has details.
Thanks sir
If someone invest on 31 March, the units gets credited after T+4 days in NPS account. So if someone invest on 31st march 2016, he will get credit in 1st week of April. Then how can Tax benefit be availed? My question is which date would be considered then? The date of debit from bank account or date of credit in NPS account?
In my opinion, it should be the date of debit from bank account. I am not sure though.
Thanks for reply. I made contribution on 28th via netbanking. But units get credited on 31st as per 31st NAV.now the yearly statment is showing Date of credit as 31 march. Looks like date of credit of units is getting considered. By just a margin of day, I am able to save a tax for FY 2015-16.
This is for your information.
This sounds good!!!
Thanks for sharing your experience.
Very nice article with all relevant details enabling a person to take the decision. Also nice of you in replying to all comments as it answers some other questions that came to mind.
Thank you.
Thanks Santhanu. Glad you found the article useful.
Please do share with friends and family.
Dear Deepesh, Thanks for the nice article. I have a doubt in NPS. Can an employee open tier 2 account, if he is already having tier 1 account under the corporate mode of NPS (his contributions are routed through the corporate)..?
You are welcome.
Both Tier I and Tier II accounts are mapped to same PRAN.
So, you can do that.
Did you open only Tier-I account at the time of joining NPS?
So, you can have both Tier-I and Tier-II accounts. Operationally how to do it, you will have to check with your employer.
Hi,
I have exhausted my 80C and already have 2.5 Lakh Investment.
Now If you contribute 50K towards NPS, Can i Claim this 50K under 80CCD.
Avinash
Yes, you can.
Btw, the limit under Section 80C is only Rs 1.5 lacs.
emloyees contrbution to nps can be countes as an additional deduction under 80CCD(1B)?
Dear Rajiv,
It can be considered under both Section 80CCD(1) and Section 80CCD(1B). It is your choice.
Dear Sir
I am investing Rs.50000/- on 11.03.2016 through axis bank in NPS -Tier i
While account opening in NSDL there is some error from axis bank side and NSDL rejected the same on 23.03.2016. Bank resend the application to NSDL for account opening. Account opened in NSDL on 28.03.2016.
Axis bank given to me receipt on same date 11.03.2016. Units against NPS contribution credited to NPS account with nav as of 04.04.2016.
My problem is 2015-16 should i get tax benefit u/s 80ccd.
Sir please reply .
Thanks
deepti
Dear Deepti,
I am not very sure on this.
In my opinion, date of investment should be considered. Would suggest you seek benefit for this contribution this year (FY2016).
Keep the bank statement and the acknowledgement receipt ready with you.
Suggest you verify this with a Chartered Accountant too.
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Suwun
Please find the below scenario:
1. PPF = Rs 150000
2. NPS(citizen model) = Rs 50000
Now should I get tax deduction for 80C/80CCD = Rs 1.5 Lakh + 80CCD(1B) = Rs 50K = 2Lakh (overall deduction on total gross income).
Please confirm and clarify?
email: monalisade1987@gmail.com
Yes, you will tax benefit for Rs 2 lacs.
Thank You for the clarification. Can you please help me to get few more answers after which I can able to open NPS account.
1> Can you please suggest me which fund manager is the best choice to choose as per performance for opening NPS?
2> Service Charges for opening & maintaining NPS if opened through PSU Bank?
3> Can the fund manager &/or Asset Class (E/C/G) can be changed every year for NPS account? If Yes, then at what month & how?
Thanks Monalisa.
1. Can’t comment. You can compare performance and make a choice. I like ICICI (for many other reasons).
2. You can find out about the charges here. https://npscra.nsdl.co.in/all-faq-charges.php
I had written a post on how to open NPS account using Aadhaar details. You can go through it. You will get comparison of costs too.
http://www.personalfinanceplan.in/financial-planning/how-to-open-nps-account-online-using-aadhaar-card/
3. Don’t think too much about it. You will just keep chasing returns. Think it can be done once in a financial year.
You can find the relevant form on this link.
https://www.npscra.nsdl.co.in/non-goverment-form.php
Information are very useful. Thank You very much.
is tax deducted by source during withdrawl at 60 years age?
i.e. whether I will get the 60% withdrwal value & I will show it to income tax during assessment or tax will be deducted & handover to me?
As I understand, there is no TDS at the time of lumpsum withdrawal.
You will have to disclose this to Income Tax department.
Thank You very much.
I have read many of your blogs regarding financial planning & investments and they are really helpful. I want few information regarding NPS which is stating benefit of additional Rs 50000.
1] Section 80CCD(1) says Employee’s contribution to NPS account.
Section 80CCD(2) says Employer’s contribution to NPS account (max of 10% of salary)
Section 80CCD(1B) says Additional contribution to NPS (max of Rs 50000)
Now I am working in a pvt organization & organization deducts 12% of EPF from my salary & NPS is not deducted. I generally invest in PPF Rs 150000 for tax savings in section 80C & medical insurance in section 80D. Since section 80CCD(1B) says additional contribution to NPS, then if I am an individual subciber for citizen model to NPS, in what conditions I will get Rs 50000 deduction after Rs 1.5Lacs in 80C ?
2] How the returns % are calculated every year for the investment choices % allocation I have made ?
NPS system compares the starting NAV value of the first investment date or 1st april of every year whichever is later with NAV value of 31st march of every year. Based on the difference NAV value, returns are calculated. Please throw some light on this.
3] Annuity purchase at time of retirement age 60 yrs, with min 40% of total accumulated matured value, is it taxable during annuity purchase?
4] As 40% of the total withdrwal is not taxable & rest taxable, then does it mean 60% of the total matured amount which can be withdrawn at maturity, for that total amount 40% will be taxed? Annuity amount of 40% of total matured amount is not taxed? Please help me to understand on these terms/conditions.
Thanks Suman. Glad you liked the post.
1. Yes, you can open account under All Citizens model and take tax benefits for investing in Tier I NPS account.
2. Returns can be calculated for any period. Typically, the returns are presented in 1-year, 3-year and 5-year returns. NPS system does not compare any returns.
3. The amount that you use to purchase annuity is not taxed. However, annuity income is taxed in the year of receipt as per your income tax slab.
4. Please go through the following post. It will clarify all your doubts.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
Thank You for your valuable information.
For point no. 2 can you please clarify a bit more.
Suppose Mr X is making contribution every year on April 1 & Mr Y is making contribution every year on November 1. Based on 1 year,3 year & 5 year returns, will both Mr X & Y get same return if we assume both of them has similar allocation in investment choices? or, returns are based on pro-rate basis depending upon date of contribution in a financial year?
X and Y won’t get same return. They are investing on different dates. Hence, different NAVs will apply. Time period is different too.
NPS is just like a mutual fund. Hence, think of NPS that way only.
Dear Deepeshji,
I have cleared my doubts by reading the above answers which you have given in such a lucid manner with great examples. So I am grateful to you for answering our queries regarding NPS as I am also a government employee.
Thanks once again.
Thanks Vijay ji.
I am glad you could benefit from the post and comments from other readers of the blog.
Request you to share the post with friends and family.
I am working with a government bank.
My salary components are as under:
Base Salary
DA
City Compensatory Allowance
Grade Pay
From the above, it seems that the employer has not included the contributions to NPS.
My query is:
Can i take deduction of 80CCD2?
The Form 16 issued to me does not explicitly show the contribution to NPS by the employer. Gross salary in form 16 is total of :-Base Salary+
DA+City Compensatory Allowance+Grade Pay
I assume the bank is actually contributing to NPS.
That may not happen. Even in case of EPF (atleast with me) employer EPF contribution did not use to be part of Form 16.
Hence, tax benefit is automatically given. Therefore, you have already received tax benefit under Section 80CCD2.
So, relax. No need to worry about it.
I have surfed through many websites which gives article about tax rules but when an individual has his personal query then writer of the article never replies to him and that particular individuals remains in doubt. But here i found most of the queries are replied by the writer.
I m an central govt employee and my contribution to NPS is around 100000/- and contribution under CGEGIS as per pay commission would be 60000/- and both ,totaling to 160000/- ,comes under 80(C). In addition to this i m a home loan bearer so can i show NPS contribution of 50000/- under 80(CCD(1B)) then contribution of NPS+CGEGIS towards 80(C) would be 110000/- and make room of adding Home Loan principle to the tune of 40000/- under section 80(C) taking it to the limit of 150000/-.In this scenario in the tax bracket of 30% i can save 12000/-.
Is the above scenario is correct or not?
It is your choice. For NPS contribution, you can show part under Section 80CCD(1) and part under Section 80CCD(1B).
Hence, you can get maximum benefit of Rs 2 lacs.
Your understanding is correct.
Sir, I am a central Govt employees my service is 30 yrs complete. my GPF contribution is Rs. 196000 in Section 80C, So can I members of NPS scheme due to availed extra tax benefit of Rs. 50000.
Yes, you can avail additional benefit for investing in NPS.
Sir,
I am Central Govt employees & I served is 30 yrs. My GPF Contribution is Rs. 196000/- in section 80C. So, I can member in NPS scheme, due to extra tax benefit of Rs. 50000/- plz provide your guidance.
I AM A RAILWAY ACCOUNTS OFFICERS MY LAST YEAR SAVINGS AS FOLLOWS:
1) NPS(own) contribution – 63705
2) GIA- 720
3) LIC – 24359
4) PPF- 140000
TOTAL- 2,28,784
PLZ SUGGEST FROM THE ABOVE SAVINGS HOW MUCH I CAN CLAIM MAXIMUM DEDUCTION UNDER CHAPTER VI-A
SORRY GIS 720
Dear Deepeshji,
I have cleared most of my doubts regarding NPS as I am also a government employee.
I wish to clarify the following & i think you can clarify the same in best possible way–
1. I am a govt. servent & in service since 2000. I am a GPF subscriber. Can I invest in NPS? my office says that I have to opt out of the GPF scheme to choose the NPS. Can’t I invest in the same as a normal citizen & without leaving my GPF subscription?
2. If I invest 50000/- in NPS to save Income Tax would it be better than to pay taxes & save the remaining approximately 35000/- in Mutual Funds?? which method would be able to give me a better corpus for retirement??
3. Investment of Rs. 50000/- in NPS would save around 15000/- as taxes. If I invest this 15000/- in MF alongwith 50000/- in NPS would not it be better than any other instrument?
I am waiting for your reply.
Dear Rohit,
1. Yes, you can invest under All Citizens model. Your employer (Government) will not contribute to it. Only you will. Your GPF account will continue. You can open NPS account online using Aadhar card.
http://www.personalfinanceplan.in/financial-planning/how-to-open-nps-account-online-using-aadhaar-card/
2,3. Depends on many things. Suggest you go through the following posts.
http://www.personalfinanceplan.in/opinion/should-you-invest-in-nps/
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
I am 48 years and would like to invest Rs.50000/- p.a. for 10 years. I am a private employee. Please suggest suitable investment with good returns and tax benefit. Presently my investment in PPF, LIC, Max life and EPF is to the tune of Rs.75000/- pa.
Dear Madam,
It is difficult to answer this question without knowing much about you.
You can increase exposure to PPF. You can consider tax-saving MFs too if you can stay invested for atleast 10 years.
Sir
I am doing a contractual job.my income is rs 600000 per annum.i invested rs 150000 in Lic and PPf.can I able to invest in nps to avail the tax benefit of extra 50000?to avail the extra tax benefit of rs50000 what amount I have to invest?
Yes, you can.For tax benefit of Rs 50,000, you have to invest Rs 50,000
Thanks for good article and all the clarifications.
I am a Govt employee and my NPS-T1 mandatory contribution is 55k for the FY16-17.
Before reading your article my plan of tax saving is:
95k in MFs + 55K NPS-T1 (mandatory contribution) + 50K NPS-T1 voluntary contribution u/s 80ccd(1B).
After reading your article, i changed my plan as:
145k in MFs + 5K NPS-T1 (part of mandatory contribution) + 50k(part of mandatory contribution u/s 80ccd(1B))
Thanks again for such an eye opening article.
Thanks Subba.
Don’t invest more than Rs 50,000 in NPS.
Since your mandatory contribution is Rs 55K, don’t go overboard.
This should be ok.
I have an new post on NPS which I think you must go through:
http://www.personalfinanceplan.in/opinion/should-you-invest-in-nps/
Consider latest developments in NPS.
Btw, I didn’t see life cover under your Section 80C deduction.
Do assess if you need life cover. If the answer is yes, purchase a pure term life cover.
If you are planning to purchase life cover, suggest you go through the following post.
http://www.personalfinanceplan.in/insurance/which-is-the-best-term-insurance-plan-for-you/
Dear Deepesh, Excellent article , it cleared lot of my confusion. I have one question. If I contribute 30000 Rs towards Tier I account and 20000 towards tier II account as employee, will I be eligible to claim tax benefit for 30000 Rs or 50000 Rs. Please clarify. Appreciate your help.
Thanks Praveen.
This is an old post. Suggest you go through the new post on NPS.
http://www.personalfinanceplan.in/opinion/should-you-invest-in-nps/
There is no tax benefit for investment in NPS Tier-II account. So, you will get tax benefit for only Rs 30,000.
Suggest you go through following post on NPS Tier-II account.
http://www.personalfinanceplan.in/opinion/should-you-invest-in-nps-tier-ii-account/
Very well article… Lot of doubts r clear… N reach to conclusion that it’s not so useful for 30℅ bracket
Thanks Sachin.
NPS may be useful for investors in 30% tax bracket. However, I do agree it is not suitable for everyone.
Hello Sir, I am a state employee. My Basic salary is 18,450 pm and Gross 44,508 pm. From this I deduct 10% means 4051 in NPS pm. I want to save tax maximum. What amount of money I can save in Insurance sector, PPF etc.
You can invest Rs 1.5 lacs in PPF for maximum tax benefit.
However, don’t get fixated with tax benefits when you make your investment decisions.
Hello Deepesh,
I would like some investment guidance. I am going to be 36 years this month. I am not married. I moved from big IT MNC to small IT startup. I plan to invest for long term and retirement.
Currently,
Montly Income: 73,000
Monthly Expense : 20,000 including rent Rs 10,000 to Dad. I stay with parents.
PPF – 1.5 lakh (9 years now)
ICICI Prudential Life Time Gold Balancer (10 years policy) – 50,000 (8th year now)
LIC Jeevan Saral – 50,000 (9th year) – (20 year policy)
NPS = 0
Mutual Funds = 0
Stocks = 0
I have a moderate risk appetite. Should I start investing in Equity Mutual Funds like SBI Blue Chip or Kotak Select Focus, Debt Mutual Funds, NPS, ULIP like ICICI Wealth Plus (100% equity).
I am planning to invest in
NPS – 6000 p.m
SBI Blue Chip – 5000 p.m
Debt Mutual Funds – 5000 p.m.
Also increase Rent to Dad from 10000 to 15000 even though Dad who is retired (74 yrs) falls in 20% tax bracket.
So my monthly extra investments will become (21,000).
Do I need Insurance but I do not have any dependents. Parents are financially secure. Please suggest your views.
Thanks,
Gagan
Dear Gagan,
If there are no dependents, you can skip life insurance for now. However, do note as you grow older and contract ailments, you may find it difficult to purchase life cover or may have to purchase at a higher premium (with loading).
Seems you are a very conservative investor.
Investing in NPS may not make such sense right now.
Take exposure to a large cap or a multi-cap fund. Avoid mid and small cap funds at the moment. As you get more comfortable with market volatility,you can allocate a small portion to such funds too.
Thank you Deepesh for your advice.
I plan to invest 5000 each in SBI Blue chip and SBI Multi Cap fund for around 15-20 years. Are they good funds to invest long term.
Gagan
Dear Gagan,
You are welcome.
Have faith in your research.
You can go to ValueResearchOnline or MorningStar to find out more about these funds.
Will help you over the long term.
And it is not that you cannot shift to a different scheme. If the scheme you have selected has not done well, you can switch to a different fund scheme.
THANKS FOR UR INFORMATION DEEPESH.
BUT IN TERMS OF TAX EXEMPTION NPS MATURITY AMOUNT IS FREE FROM TAX UPTO 40% OF UR CORPUS AMOUNT AND 40% AMOUNT ON ANNUITY IS ALSO TAX FREE. IF U WITHDRAW 60% AT THE TIME OF RETIREMENT THEN U HAVE TO PAY TAX FOR ONLY 20% SO HOW CAN U SAY THAT PAY TAX NOW OR LATER IT IS SAME.
U CAN SAVE TAX DEFINITELY ON INVESTING IN NPS. JUST MATURITY PERIOD IS VERY LONG.
Dear Ravi,
It is an old post. Much before taxation was relaxed in this Union Budget
Read my revised take on NPS in the following post.
http://www.personalfinanceplan.in/opinion/should-you-invest-in-nps/
Btw, annuity income is not exempt from tax.
For revised NPS tax rules, suggest you go through the following post.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
Sir
can i avail tax benefits NPS for my spouse name as dependent on me ???
Hi Mohit,
You cannot take benefit for investing in spouse’s NPS account.
Dear Sir,
I am a state govt employee i like to invest in NPS it possible for me since i have CPS
most of people confusing by saying both NPS /CPS are same
since i have a cps no there is no option to open a NPS
Dear Suresh,
Can’t comment if NPS and CPS are same.
If CPS and NPS are same, you cannot open a new NPS account.
Dear Deepesh, Excellent article , it cleared lot of my confusion. I have one question i am working in a Tamilnadu aided institute (govt employee) in our concern we have a CPS deduction i like to contribute NPS in ALL CITIZEN MODEL whether it possible if i ask this question to my colleague or any people they saying about both CPS and NPS are one if you contribute under ALL CITIZEN MODEL also there was a problem if it so kindly give a valuable advice to me
Thanks Raja.
This question has been asked many times before on this forum. It is prudent that I do not comment on whether CPS and NPS are same.
Have you issued a PRAN? You can contact NSDL CRA and seek clarification. I am not sure.
All I can say is that if CPS and NPS are same, then you can open new NPS account under All Citizens model.
Excellent write-up with examples. It clears lots of things. Thanks for writing.
Thanks Pradeep.
Request you to share the post on your social media pages.
Deepesh ji i want to clarify one thing. I am a central govt employee and
in NPS
My Contribution is 60000
My employeer’s is 60000
My PPF 150000
do i get any additional benefit if i invest 50 K extra in NPS
what will be my savings limit
Dear Vishal,
You can get tax under Section 80CCD(1B) without investing an additional amount in NPS.
You are already investing Rs 1.5 lacs in PPF. So, your limit under Section 80C (and by extension Section 80CCD(1B)) is already exhausted.
Hence, you can claim your contribution (Rs 60,000) to NPS under Section 80CCD(1B).
No need for additional investment in NPS.
Sir,
I m Govt. Employee. I have taken Home Loan.
Salary 897273
My Share to NPS 80806
Govt. Share 80806
LIC 35164
Loan Principal 88630
Loan Interest 166827
Kindly tell me how my taxable income will be calculated.
narpinder59@gmail.com
Suggest you go through the following post.
http://www.personalfinanceplan.in/taxes/pfp-primer-how-to-calculate-income-tax-liability/
I m a central government employee under NPS scheme to get additional tax benefit of Rs. 50000 by investing in NPS. What are the procedures to be followed . wt r the procedures to be paid NPS .
You invest Rs 50K in NPS to get benefit.
I work with Private MNC, I have NPS account which I opened during my previous company tenure.
In 80C- I have House Loan, PF, Child Education, Insurance is coming more than 1.5 tax.
but for this year I have not done any contribution in NPS. I can avail 50000/- tax benefit in 80ccd1b by investing 50000/- in NPS.
Yes, you can avail benefit by investing Rs 50,000 in NPS.
Sir,
I wish to clarify one great thing regarding NPS contribution. If my savings under 80C exceed 1 lakh 50 thousand(e.g. 2lakh), can i show my actual NPS contribution in Additional 80ccd(1B)and remaining in 80C.. i mean can i split it to total of 2 lakh…is it possible in IT.?
I am not sure if I got your question right. But yes, you can choose to use your NPS contribution under Section 80CCD(1B).
Deepeshji………such a wonderful article.I am a state government employee.my investment in mutual funds and LIC is 1.5 lac……my nps deduction 65000 yearly by state government.can i take benefit for tax savings this deduction or extra deposit 50000 in nps account.
Thnx
Dear Vishal,
Yes, you can use the existing 65,000 under Section 80CCD(1B).
No need to make extra deposit.
Very nice article Mr. Deepesh !
Nice forum.
May I ask some thing: how one can save tax through housing loan route at the time of retirement.
Thanks!!!
Housing loan tax benefits are irrespective of your age.
Hence, if you have taxable income, you can take tax benefits.
Hi Deepesh,
I find your post very informative. I could see the analysis you presented here mainly focussed on individual contribution in NPS and corporate contribution not considered.
I wanted your opinion where we consider both employee+employer contribution in NPS. Will that make NPS more lucrative or advisable to invest in?
Thanks,
Ashish Kumar
Hello,
My question is: if i deposit more than 1.5 lacs under all 80c schemes combined(e.g., 1.5 lacs in ppf, 60k in lic, 30k in school as tuition fee etc.) then what would happen?
Of course, i am claiming only 1.5lacs under section 80c while filing ITR.
But i came to know from many people that if you deposit more than 1.5 lacs under section 80c then at the time of maturity of those schemes, income tax department will deduct all the earned interest and yo will get only the deposited money and that too without any interest.
Is it true? Please guide me!
No, there will be NO excess tax at the time of maturity if you deposit more than 1.5 lacs in Section 80C investments.
This complication is only for PPF investment (even in that case,there is no excess tax liability).
Sir, I really found your post quite helpful to understand all about NPS.
I would like to know that if I have invested the amount of Rs 1.5 lac in PPF and made the contribution of Rs 18000 in NPS. Then can I get the extra tax benefits for Rs 18000 through 80CCD(1B) or the contribution amount in NPS should be Rs 50000 or more to claim that over and above 1.5 lac benefit.
Kindly make me confirm sir regarding this.
Thanks and regards
Ravi
Dear Ravi,
There is no minimum investment to claim tax benefit under Section 80CCD(1B).
So, you will gt benefit for Rs 18,000 too.
Sir, I am 48 yrs old, planning to take early retirement in next few months. Please advise whether to go for NPS to save extra tax for this financial year and next year as there won’t be income other than pension from 2018 onward.
Dear Devang,
There is no crisp answer.
If I were you, I wouldn’t do it.
Sir,
I have one more query about NPS.
If I have invested RS. 138000/- in PPF and My NPS contribution is of Rs. 62000/- then sir can i use my NPS contribution in two slots I.e. 12000+50000 . So my saving slot of Rs 150000/- can be completed and for 80CCD(1B) the remaining RS. 50000/- will help to get extra tax benefits.
Kindly Suggest sir!
Thanks again!!
You can do that. Please consult a Chartered Accountant.
Thanks for the detailed explanation Deepesh.
I have a query regarding my investment.
I already have invested 1,50,000 in PPF and 50,000 in NPS by my own.
Above that, I am also investing 96000 annually in NPS through my employer as they have super annuity plan.
So in total, how much tax benefits I can avail while filling IT return and under which sections?
A. 1,50,000 + 50,000 + 96,000 OR
B. 1,50,000 + 50,000
Thanks in advance 🙂
You are welcome, Kalpit.
Rs 1.5 lacs under Section 80C and Rs 50,000 under Section 80CCD(1B).
IF your employer is also contributing to your NPS account, the contribution will come under Section 80CCD(2). However, this deduction is automatic.
Nice write up and Followup too Deepesh.
I would like to know whether I should contribute 50K lumpsum every year at one go, or distribute it evenly over 12 monthly instalments and contribute as in SIPs particularly because its gonna be investment in equity and bonds.
Thanks
Thanks!!!
There are transaction charges for each transaction. Hence,you increase the cost of transaction by transacting multiple times.
http://www.personalfinanceplan.in/opinion/what-are-the-various-charges-incurred-while-investing-in-nps/
Depends…Rs 50,000 is what portion of your overall investment per annum.
What is your investment pattern in NPS? breakup of equity and debt?
Do not know much about you. In any case, I think more than 3-4 transactions will be an overkill.
Hello Deepesh Sir..
Really it’s a splendid article but I want you to please spare a min in my case If I get it right..
I am govt employee, my contribution to NPs had been RS 55288 and same RS 55288 by my employer,
My DDO has shown govt contribution as part of my income and has given same rebate RS 55288 only..
I have already invested RS 1.5 lacs in other 80-c instruments apart from NPS.. my Ddo want now me to invest additional 50k in NPs to get extra rebate of 5k under section 80ccd 1(b).. I have explained that my contribution may be treated in that but they say they have given me benefit by deducting 55288 ( but this was my employer contribution )
Their point is my rebate would exceed 2 lac I.e. 1.5k other instruments, 55288 employer contribution and 50000 which I am asking..
I have uploaded my calculation sheet here..I would be highly thankful if you could spare a min for it..
Here it is sir
http://tinypic.com/r/2a9a0rl/9
Thanks a lot
Thanks Sanjay!!!
Govt. contribution comes under Section 80CCD(2).You have already got deduction for it. This is over and above Rs 2 lacs (Rs 1.5 lacs + 50,000).
Tax benefit of Rs 50,000 (over and above Rs 1.5 lacs) is for own contribution.
Your accounts office is wrong in saying that you have already been given deduction.
You should get the following tax benefits.
1. 1.5 lacs under Section 80C
2. 50,000 under Section 80CCD(1B)
3. Rs 55,288 under Section 80CCD(2)
But, you will have to show it this way while filing for returns. Your employer is unlikely to do it.
Will be great if you could share the post on Facebook page or Twitter handle.
Deepash,
This is the best article on NPS I read and it cleared all my doubts.
Wow!!! This is quite a compliment. Thanks Pardeep!!!
A small request. Will really appreciate if you could share the post with you friends on Facebook or Whatsapp.
Thanks Deepesh for the informative article. The most important line in the article is your personal view that you would not invest in NPS in its current form.
I too am of the same opinion. I would like to share my calculations with you and would like to know if am wrong.
I was planning to open NPS a/c for my son age 23. I used the HDFC NPS calculator with default values for returns. If he deposits 50K per year, till the age of 60, the accumulated amount is near 1Cr. If 50% is kept in annuity, (5lac per year is withdrawn) and the monthly pension works out to 33K. which is 3.96lac, so per year he get 5lac + 3.96lac = 8.96lac. Cannot predict the tax slab after 36 years. More importantly just to save 15k of tax for 36 years (5.4 lac over 36 years) he will be locking up almost 1cr. till age of 60, and will have to pay tax if he withdraws & for the annuity amount, he himself will never get that amount. Instead if he judiciously invests in mutual funds (growth and dividend), he will have the full amount at his disposal if the need arises. For a person who is aware of mutual funds and other investment options, NPS does not make sense if the sole purpose is to save on tax. Please let me know weather I am right or wrong.
Thanks Ashvin!!!
Much has changed since I first wrote the post. Now, 40% of the maturity amount is exempt from tax.
Now, my opinion is that investors in 30% tax slab (marginal tax rate is 30%) can consider NPS.
The only limitation is that your other investments shouldn’t get crowded out. And yes, you shouldn’t invest more than Rs 50K per annum.
Suggest you go through the updated posts.
http://www.personalfinanceplan.in/opinion/nps-tax-benefits-and-tax-treatment-at-maturity-revised/
http://www.personalfinanceplan.in/opinion/should-you-invest-in-nps/
Let me know if you need any clarification.
Thanks, I check the two links, and now I am very clear on NPS.
That’s great.
I have a small request. Please do share the posts you like on your social media pages.
Hello Deepesh
I have invested rs 49000 in NPS on 27th March with payment debited from Internet banking on NPS website
Been – 28th was holiday and due to some delay NPS Units are not been credited to my account till time i.e 30th March
Been tomorrow again 31st March and 1st April – banks are closed for annual fy closing
Could you advise – am i eligible to avail tax benefits of rs 50000 as amount already debited from my bank account or am i at problem in tax saving as units not credited in my account
Appreciate and thanks in advance for your informing article post
Hi Gagan,
The aspect is a bit ambiguous.
Some opine that the date of credit of units should be considered for tax purposes while others say that it should be the date of investment (when your bank account got debited).
I agree more with the second opinion. The date of debit from your bank account should be considered investment date for tax purposes.
Suggest you consult a Chartered Accountant.
From next year, please plan your investments well. Do not leave everything to last week of March.
Thanks, just one more thing
I have made payment from proprietorship bank account
Could this be acceptable in NPS and for taxation benefits in Individual ITR Filing
In my opinion,you should have transferred from own account (and not sole proprietorship)
Which account did you register with NPS?
But I guess this should be ok. Not sure though.
Better to transfer money from own account to proprietorship account.
Hello Deepesh Sir..First of all thanks for such a valuable and appreciated post. I am a bank employee and my savings are emp cont to NPS Rs. 54k Lic Rs. 54k Tax saver FDR Rs. 28k my employer cont. Rs. 54k. Now I want to invest through enps Rs. 40k to avail the benefit of 80ccd1b. Can I do that. I want to pay it by credit card would that be any issue.
Thanks and Regards
eNPS portal permits investment through credit card. You can do that.
hi Deepesh,
Two Q’s from my end :
1.Like, if we invest in PPF before 5th of the month the interest starts from that month, so does it somehow has an effect if we invest in April month from aspect of investment or is it fine if we invest in March month (year end) and further take the investment / tax benefit.
2. On the tax deferral part, currently the basic exemption is around 3 lakh max, in future we may see higher level of basic exemption, so is it generous to calculate the tax analysis on current slab and think of the annuity withdrawal and get slightly concerned on the same.
Thanks in advance for the help.
Hi Jinendra,
1. I am not sure if I got your question right. March 2017 and April 2017 fall in different financial years.You must deposit before 5th of the month for getting interest on the invested amount for the month.
2. Even though you have a very valid point, I won’t comment on this matter. This is sheer speculation. Many tax laws may change by the time you or I retire. For instance, rates of taxation may go up. Or the tax slabs may be removed entirely. There may be flat x% tax on every income. We don’t know.
We can’t possibly account for all possibilities. Therefore, it is better to do analysis based on the current tax rules.
Hi Deepesh,
Can I open NPS account for my wife [she is housewife]. I already have an NPS account for myself.
You can open account for your wife or rather she can also open a NPS account.
You will NOT get any tax benefit for investing in wife’s NPS account.
I have wrongly contributed in tier 1 two days ago..when today i received msg in my mobile about unit allotment then i realised that i have committed mistake ..i wanted to contribute voluntarily in tier 2 instead of tier 1..
Now is there any procedure to reverse the entry and transfer to tier 2 or return the exact money.. I dont want benefits return only my amount.
Hi, I have taken VRS and a house wife now. I have my income generated through various investments like rent FD etc and i invest in PPF 1.5L to avail tax benefit;
how do I invest in NPS tier 2 for availing additional tax benefit of 50K under Section 80CCD (1B).
There is no tax benefit for investment in Tier-II NPS account.
Tax benefit is only for investment in Tier-I account.
Hi Deepesh,
Can you suggest a ‘profitable’ time of the year when to invest the entire 50k in NPS Tier 1 a/c ?
Thanks,
Suman
Hi Suman,
No idea.
You can wait and invest when the markets are down.
Or you can invest on April 1. At least debt portion will earn income.
Hi Suman,
Since 2 years i.e in 2015 and 2016, i invested in Dec, and it was a co-incidence, market was down at that time. looking the same condition right now. December and markets are declining, will wait till dec 18, then will invest 50k for this FY. Only problem is NAV allotted will be of which date is not fixed like mutual funds, you may get NAV of 3 days later of the date invested..
I am a government employees and I have a nps account for 10% of salary is credit in this account
जैसे 1साल मै 70000 का invest हुआ तो क्या मुझे इनमें से 50000 की tax rebate 80ccd (1) b मे मिले गी तथा 20000 की tax rebate 80c मै मिले गी
आप कैसे चाहें वैसे ले सकते हैं|
आप कितनी भी राशि 80CCD(1) (80C) के अन्दर दिखा सकते हैं|
बची हुई राशि 80CCD(1B) के अन्दर दिखा सकते हैं|
I have Rs 150000 in PPF and 43000 in NPS (10% of salary). I want to take benefit of 80C and 80 ccd (1b) both. Can i take this benefit? My employer is providing me only Rs. 150000/- denying to give benefit of 80ccd(1b) for extra benefit of 50000.
My question are
1. can I take 80 CCD(1) and 80ccd(1b) both benefits?
2. If my employer shows NPS deduction under 80C in form 16 then how can i take benefit of this additionnal benefit under section 80 ccd(1b).
3. Can I change that section of NPS in form 16 from 80 CCD(1) to 80ccd (1b) in ITR at the time of filing ITR? will it be ok?