On investing in NPS, you can claim tax exemption under section 80CCD of Income Tax. It has two sub-sections – 80CCD(1) and 80CCD(2). Apart from this, there is another sub-section of 80CCD(1) 80CCD(1B).
It’s the season to save income tax. These are the last three months in which if you invest money then there will be no tax tension. But, where to invest the money? Everything ends in the exemption of Section 80C. Is there any good investment option after this? Of course it is. It is a government investment tool. Its name is National Pension System, which is also called New Pension Scheme. This is a tool in which double tax benefit can be availed. There is tax benefit up to Rs 50,000. But, investing in NPS on your own is not beneficial. Now you must be wondering why so? Actually, if you take NPS through your employer, you will get more benefits. There will even be benefit in tax exemption. Let us understand how…
Additional discount available in 80CCD
On investing in NPS, you can claim tax exemption under section 80CCD of Income Tax. It has two sub-sections – 80CCD(1) and 80CCD(2). Apart from this, there is another sub-section of 80CCD(1) 80CCD(1B). You can get tax exemption of Rs 1.5 lakh under 80CCD(1) and Rs 50 thousand under 80CCD(1B). But, apart from this exemption of Rs 2 lakh, income tax exemption can also be claimed under 80CCD(2).
How to get the benefit of higher tax exemption?
This exemption is available on investment in NPS by the employer. This NPS is a benefit through employer. In this, tax exemption on investment in your NPS is claimed by the employer. 10 percent of basic salary and dearness allowance can be invested in NPS by the employer. At the same time, for central employees, 14 percent is invested in NPS, tax exemption is available on this. Most companies provide NPS facility. You can invest in NPS by talking to the HR of the company. Its advantage will be that additional tax exemption can be availed in this.
How to calculate tax?
Suppose your salary is Rs 10 lakh. This salary will be taxable income. But, remove the deduction of Rs 1.5 lakh of 80C and Rs 50 thousand of 80CCD(1B) from the total salary. After this, also subtract the standard deduction of Rs 50 thousand. Now taxable income will be Rs 7.50 lakh. If you have got reimbursement in salary from your company, then you can save tax up to Rs 2.50 lakh through reimbursements like Uniform Allowance, Broadband Allowance, Conveyance Allowance, Entertainment etc. After claiming reimbursement, the taxable income will be Rs 5 lakh.
Your income tax will become zero
Your income tax will become zero. Under Section 80CCD(2), if you invest in NPS through your employer, you can invest Rs 50,000. In this way, the taxable income of those in the salary bracket of Rs 10 lakh will be reduced by Rs 5 lakh. The benefit of rebate is available on this taxable income under section 87A. This means the tax on your total income will be zero.
Investment will be decided by basic salary
By investing in NPS through your employer, you can avail maximum exemption under Section 80CCD(2) of Income Tax. There is no limit on investment in this. But, the amount of your investment will be decided only on the basis of your basic salary.
