The National Pension System (NPS) is an attractive option for individuals looking to secure their future financially. NPS has numerous benefits, such as the potential for high returns, ease of investing, being voluntary, portable, and regulated. Apart from these features, it is also known for attractive NPS tax benefits. Let us delve into how NPS would become an effective tool to save tax and secure your financial future.
What is NPS?
The National Pension System, also known as the National Pension Scheme, is a retirement pension scheme introduced by the Government of India. The main aim of this scheme is to provide regular income after retirement to its subscribers. It allows investing in equities, corporate bonds, government securities, and AIFs.
NPS For Tax-Saving: Benefits
Let’s have a look at NPS tax-saving benefits under different sections of the Income Tax Act.
- NPS tax-saving benefits under Section 80(C): Under Section 80C of the Income Tax Act, investing in NPS is eligible for a maximum deduction under the Income Tax Act of ₹1.5 lakh per annum. This means a subscriber pays less in taxes based on that investment towards their taxable income.
- NPS tax-saving benefit under Section 80CCD (1B): Under Section 80CCD (1B) of the Income Tax Act, NPS offers an extra deduction of ₹50,000. This is over and above the ₹1.5 lakh limit of Section 80C, allowing for a total deduction of up to ₹2 lakh in a financial year. This makes NPS a powerful vehicle for tax savings.
- Tax-free Withdrawal: When you retire and start withdrawing your NPS funds, up to 60% of your corpus can be withdrawn as a lump sum, which is tax-free. However, the remaining 40% must be used to purchase an annuity, which will be taxed as per your applicable tax slab. This structure allows for a significant portion of your retirement savings to remain tax-free.
- Tax Efficiency on Returns: NPS investments generate market-linked and tax-efficient returns. Annual returns are not directly taxed, but the amounts contributed to the overall corpus are taxed upon withdrawal.
How can you secure your golden years by opening an NPS account? Click here to read.
Why Choose NPS for Tax Saving?
- Long-Term Wealth Creation: NPS encourages disciplined saving and long-term investment, making it ideal for retirement planning.
- Flexibility: Subscribers can choose their asset allocation and switch between different funds, allowing them to adapt to changing market conditions.
- Portability: NPS accounts are portable, meaning NPS subscribers can continue their contributions even if they change jobs or move cities.
- Regulated by the Government: The Pension Fund Regulatory and Development Authority regulates the transparency of NPS.
- Cost-effective Investment: Any Indian citizen between 18 and 70 can open an NPS account with ₹500 only.
Final Thoughts
The National Pension Scheme comes with attractive tax benefits. It gives you the freedom to invest for your retirement and save taxes at the same time. The NPS scheme offers tax benefits under various sections, and an investor can save up to ₹2 lakh on taxes. This makes NPS an attractive option for modern-day subscribers who are looking to plan for their retirement.
How can NPS Benefits help you in your golden years? Explained 
