Contributions made towards NPS are eligible for tax deductions as mentioned below:
Tier I
Contribution made by the Salaried Individual:
• To the extent of 10% of Salary (Basic + Dearness Allowance) is eligible for tax deduction u/s 80CCD (1) of Income Tax Act, 1961 within 1,50,000 limit under section 80 CCE
• Additionally employees can invest upto 50,000 towards NPS which is eligible for tax deduction u/s 80CCD (1B) of Income Tax Act, 1961
Contribution made by Self Employed Professionals:
• To the extent of 20% of Gross Annual Income will be eligible for tax deduction u/s 80CCD (1) of Income Tax Act, 1961, subject to 1.5 Lakh limit of section 80C
• Additionally, investment upto 50,000 is deductible from taxable income u/s 80CCD(1B) of income tax,1961
Contribution made by Employer:
Additionally, Under Sec. 80 CCD(2) Employer’s contribution to NPS Account of the employee upto 10 % of salary (Basic + DA), without any monetary limit is deductible from taxable income.
Tax Treatment on Maturity:
• Up to 40% of corpus withdrawn in lump sum is exempt from tax
• Balance amount invested in Annuity is also fully exempt from tax
• Pension received out of investment in Annuity is treated as income and taxed appropriately.
Tax Benefit on Partial Withdrawal:
• Partial withdrawals from NPS are tax free.
Provision of Transfer from Superannuation Fund to NPS:
• As a NPS subscriber you can transfer your Superannuation corpus to NPS to enjoy higher tax benefits, higher lumpsum withdrawals and larger flexibility on maturity.
Note:
• The benefits described above are mutually exclusive
• There is no upper cap in terms of absolute value in case of section 80CCD (2)
Tier II
• There is no tax benefit on investment towards Tier II NPS Account