Why Employer Contribution is Tax-Free under the National Pension Scheme?
The National Pension Scheme is considered as one of the most preferred investment tools for retirement planning. NPS is a tax-efficient financial product that not only builds a good corpus for your retirement but also offers regular pension facility on retirement. Investing in the National Pension Scheme helps you reduce your tax outgo. Before we focus on the tax implications on National Pension Scheme investment, let’s know in brief about the National Pension Scheme
National Pension Scheme – An Overview
National Pension Scheme is a long-term and voluntary investment scheme launched by the Government of India for retirement. The scheme is available for all citizens of India between the age bracket of 18 years and 65 years. National Pension Scheme is a market-linked financial product that does not allow you to withdraw till the time of maturity i.e. 60 years of age. You can choose the fund and fund manager for your NPS. Your investment into the national pension scheme is managed by India’s best professional fund managers.
National Pension Scheme – Performance
Best NPS plan helps you grow your investment over the years at a good rate. The National Pension Scheme is suitable for conservative to aggressive investors. Based on your risk appetite you can make fund selection. Etmoney.com is the best personal finance platform that helps you compare the National Pension Scheme online based on their performance and fund size, etc.
(Please note: above returns are for an aggressive portfolio of 36 years old investor)
National Pension Scheme – Tax implication
NPS subscribers can claim tax deduction under Section 80 CCD (1) of the Income Tax Act, 1961 for the investment of up to a maximum of INR 1.5 lakhs. For NPS subscribers with Tier, I accounts, an additional deduction for investment up to INR 50,000 is available under subsection 80CCD (1B). That makes the total tax deduction available for National Pension Scheme investment is INR 2 lakhs. Now, let’s focus on tax implications on employer contributions under the National Pension Scheme.
Employers can contribute to your National Pension Scheme investment. Your employer’s contribution to the National Pension Scheme is a part of your taxable salary, which will reflect in form-16. Employer contribution under National Pension Scheme is allowed for the deduction of up to 10% of the salary and 14% of the salary for central government employees under Section 80 CCD (2) of the Income Tax Act, 1961. However, the deduction allowed is subjected to the aggregate contributions towards National Pension Scheme, Employee Provident Fund and Superannuation of up to INR 7.5 lakhs in a year. The amount in excess of this limit is taxable.
You can invest in the National Pension Scheme online through etmoney.com, one of the best personal finance platforms. As etmoney.com lists out the best NPS plans of various fund managers, it becomes easy to compare each of this National Pension Scheme online on the basis of returns, fund size and the fund manager. You can also choose the portfolio – aggressive, moderate or conservative depending on your risk appetite and investment preference. Visit etmoney.com and invest in National Pension Scheme Online to secure your post-retirement life.