NPS: A Strategic Tax-Saving Tool Every Professional Should Know

NPS: A Strategic Tax-Saving Tool Every Professional Should Know

NPS has become the top choice for retirement planning in recent years. This strategy attracts a lot of investment due to its alluring tax advantages. Even so, many investors cannot fully benefit from the tax reductions offered by this scheme.


This money won't be taxed if your employer (the business where you work) contributes up to 10% of your basic income to the NPS corpus. However, there hasn't been much drive among the staff to take advantage of it.


NPS has great potential, but it is underutilized, according to PFRDA chairman Deepak Mohanty, who spoke to Moneycontrol in June. He said that the PFRDA has connected roughly 13,000 businesses to this scheme. But few employees are expressing interest in this plan.


Let's understand how having your employer contribute to your NPS account will help you.


Tax Deductions in NPS

Under section 80C of the Income Tax Act, you may deduct voluntary contributions to the NPS. You must use the previous income tax system for this. As an employee, you are eligible for a deduction under section 80CCD(1) if you contribute up to 10% of your basic salary plus the dearness allowance. NPS accepts individual donations as well. Contributing is not required of an employee. Your deduction, though, will be limited to the Rs. 1.5 lakh allowed by section 80C. In addition, you are eligible to receive a tax advantage totaling Rs 50,000 under section 80CCD(1B). These two advantages are commonly known to people.


The tax advantages provided by the corporate scheme are only utilised by a very small percentage of employees. People's ignorance of these advantages is the cause of this. You can drastically lower your tax liability by using section 80CCD(1B). The prerequisite is that your employer must contribute to your NPS account. Both the old and current income tax regimes offer this benefit.


Who can invest?

Under the Corporate Scheme, resident Indians, NRIs, and Overseas Citizens of India (OCI) can sign up as NPS members. Anyone between 18 and 70 can enrol directly in the corporate plan through their employment. You can provide your employee access to your Permanent Retirement Account Number (PRAN) if registered as an NPS subscriber. Through this, he can contribute to your account.


You will be qualified for a deduction of up to 10% of your basic salary (basic plus DA) if you are a salaried employee and your cost-to-company structure allows employer contributions to your NPS. If you work for the government, the deduction will be higher at 14%. You will continue to be eligible for a deduction on your contribution under sections 80CCD(1) and 80CCD(1B).


In the new income tax system, various deductions and exemptions have been eliminated. The tax exemption on the employer's payment to the NPS has been preserved, even under the new system. A deduction of up to Rs 1.5 lakh will be permitted under section 80C if you choose the old regime. A deduction of Rs 50,000 is also available to you under section 80CCD(1B).


It's vital to remember that in addition to making contributions to your EPF account, your employer may also contribute to your NPS account. The employee and the employer are not required to pick one.

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