In the NPS scheme, one can have an income tax exemption on NPS investment up to Rs 50,000 additional to Rs 1.5 lakh given to each investor for investing in the investment schemes falling under Section 80C.

KEY HIGHLIGHTS

  • An additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B)
  • If you are an existing NPS subscriber, you can approach any POP-SP or alternatively you can visit eNPS website for making an additional contribution in your Tier I account
  • In NPS scheme, one can have an income tax exemption on NPS investment up to Rs 50,000 additional to Rs 1.5 lakh given to each investor for investing in the investment schemes falling under Section 80C of the Income Tax Act

 Public Provident Fund (PPF) is one of the most popular long-term investment instruments among Indian investors. However, not many are aware that they can make more money than PPF with National Pension Scheme investment offers additional tax benefit of up to Rs 50,000 above the Rs 1.5 lakh limit.

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This means that if an earning individual has reached the Rs 1.5 lakh per annum income tax limit of investment in PPF, EPF or VPF, Equity Linked Savings Scheme (ELSS), mutual funds, etc., then they can invest in NPS scheme as it helps an investor avail additional tax sops of up to Rs 50,000 per annum – that takes the total tax benefit to Rs 2 lakh.

According to NSDL website, any individual who is a subscriber can claim tax deduction up to 10% of gross income under Section 80 CCD (1) of the I-T Act within the overall ceiling of Rs 1.5 lakh under Section 80 CCE. An additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act, 1961.

Due to the equity exposure, if someone chooses the 50:50 option of the equity and the debt options in NPS scheme, in long run debt option would give around 8 per cent returns like PPF while the equity exposure would give at least 12 per cent returns in the long-term. Means, if a person invests Rs 100 in scheme’s active mode and Rs 100 in NPS scheme’s auto mode, he or she would get 8 per cent returns in active mode while in auto mode his or her returns would be 10 (6+4 = 10) per cent returns, which is 2 per cent higher than the PPF — best retirement-oriented investment option for an investor whose risk appetite is lowest.”

It is worth mentioning that under NPS, there are two types of accounts — active mode and auto mode also known as Tier-1 and Tier-2 NPS account. Tier-1 is active mode and Tier-2 is auto mode. In the active mode NPS account, an investor can evaluate the return annually and can switch from equity to debt fund and vice verse. While in auto mode, there would be 8 fund managers handling investor’s money and making a switch from debt fund to equity funds and vice versa.

In NPS scheme, one can have an income tax exemption on investment up to Rs 50,000 additional to Rs 1.5 lakh given to each investor for investing in the investment schemes falling under Section 80C of the Income Tax Act. If you are an existing NPS subscriber, you can approach any POP-SP or alternatively you can visit eNPS website for making an additional contribution in your Tier I account.