What are the crucial NPS tax benefits that one can avail to build their retirement corpus?

Golden years, retirement funds, or some other term. Regardless of what you call it, everyone needs a retirement savings plan to ensure financial stability later in life. One of the smartest ways to prepare for your retirement is to invest in National Pension System(NPS). Not only does this government-backed scheme offer you an attractive rate of return, but it also provides you with a number of tax benefits.

NPS subscribers qualify for tax benefits under specific sections of the Income tax Act 1961. These sections include: – Section 80CCD (1), 80 CCD (1b), and 80CCD (2). The following is a detailed breakdown of the national pension scheme tax benefits -. 

Tax benefits under section 80CCD (1)

This tax benefit is available for contributions up to a limit of Rs 1.5 lakh in a financial year. Both self-employed individuals and salaried employees qualify for this deduction. Salaried individuals can claim a maximum deduction of 10% of their salary, and self-employed individuals or non-salaried professionals can claim a maximum deduction of 20% of their gross income.  

Tax benefits under section 80CCD (1B)

Under section 80CCD (1B) of the Income Tax Act, an individual can claim an additional deduction of up to Rs 50,000 for contributions to the NPS Tier 1 account. This NPS tier 1 tax benefit goes over the Rs 1.5 lakh limit under Section 80C.  

So, you can claim a total deduction of up to Rs 2 lakh through NPS – Up to Rs 1.5 lakh under Section 80C followed by an additional deduction of Rs 50,000 under Section 80CCD (1B). 

Tax benefits under section 80CCD (2)

If a company offers an NPS option, the employer’s contribution to the NPS account offers a tax rebate under Section 80CCD(2). The deduction is capped at 10% for private employees, and for central government employees, it cannot exceed 14%. 

National pension scheme tax benefit upon maturity 

Up to 60% of the maturity amount can be withdrawn tax-free. The remaining 40% has to be invested in an annuity plan for funding your post-retirement pension income. Moreover, you can choose to invest till the age of 75 and continue to avail tax benefits.

Steps for online NPS account opening

The NPS account opening online apply process is designed to be simple and takes only 10-15 minutes. 

There are various registered banks in India that offer NPS. Simply visit your bank’s official website. Click on the ‘Apply Now’ tab under NPS. Fill out the form and complete the prompts asking you to provide scheme details, KYC details, bank account details, nominee details, initial contributions, etc. Upon completing these steps, an OTP will be sent to your registered mobile number, after which you will be allotted a 12-digit PRAN number.  

Closing thoughts

These are just some of the crucial national pension scheme tax benefits that you, as a responsible investor, should be aware of. Understanding these benefits and how they can be claimed can help individuals plan their investments accordingly and build a strong retirement corpus.