National Pension System (NPS) is not only a good investment medium for retirement planning but it is also helpful in saving tax. Many people do not take full advantage of the tax benefits available under NPS.
If your employer contributes up to 10% of your basic salary and DA to the NPS corpus, then this amount will not come under the ambit of tax. This money can be part of your total cost-to-company (CTC). This will reduce your tax liability significantly.
You yourself can contribute up to 10 percent of your basic salary and DA to NPS. On this you can claim deduction under section 80CCD (1). Let us know in detail how NPS can help you in saving tax.
In addition to the 10% contribution of base salary and DA under Section 80CCD (1), you can avail an additional tax benefit of Rs 50,000 under Section 80CCD (1B). This is in addition to the 80C limit. But, it has to be kept in mind that the deduction available under section 80CCD (1) is subject to the total limit of Rs 1.5 lakh under section 80C.
Apart from this, Section 80CCD (2) can help you a lot in tax-savings. For this, your employer will have to contribute up to 10 percent of your basic salary and DA to your NPS corpus. This limit of 10 percent is for people working in the private sector. For government employees this limit is 14 percent.
The tax benefit available under section 80CCD(2) is available in both the new and old income tax regimes. If you are a private employee, you can ask your employer to contribute up to 10 percent of basic salary and DA to NPS. This money will be a part of your CTC, so there will be no additional burden on your employer.
This can be understood with an example. Suppose your basic salary and DA is Rs 50,000 every month. In such a situation, your employer can contribute Rs 5000 to your NPS every month. In this way he will contribute Rs 60,000 annually. This money will be taken out of your taxable salary.
Most of the deductions and exemptions are not available in the new income tax regime. But the benefit of deduction under section 80CCD (2) is available on contribution in NPS. The government has also given the benefit of standard deduction of Rs 50,000 in the new income tax regime from the financial year 2023-24. If you are employed then you can avail this benefit.
