The
National Pension System (NPS) is a defined contribution retirement scheme
managed and regulated by the Government of India's Pension Fund Regulatory and
Development Authority (PFRDA). Any Indian citizen aged between 18-65 years as
of the date of submission with the stated institutions (referred to as the
point of presence) approved by the PFRDA may subscribe to the NPS scheme.
In NPS investment, the subscriber is assigned a unique and flexible Permanent Retirement Account Number (PRAN). There are two schemes under the NPS system-Tier 1 (restrictive-withdrawable retirement account) and Tier 2 (voluntary savings account with full withdrawal flexibility at any time). Tier 1 account withdrawal is not allowed until the subscriber reaches the age of 60 years or retirement.
Nevertheless, if a person wishes to leave the NPS (allowed only after 10 years of joining) before retirement or 60 years of age, then per cent of the corpus will have to be declared and only 20 per cent will be available for lump-sum withdrawal.
Nevertheless, there is a provision for partial withdrawal from Tier 1 account up to 25 per cent of the amount contributed by a person for specific purposes such as child/child marriage or higher education, the purchase of a house and self/family medical care, subject to certain conditions being met.
Tier 2 plan does not have income tax benefits. On the other hand, the Tier 1 account is covered under the EET (Excluded Exempt Taxed) system where contributions to the program, contributions return, and a defined portion of the account withdrawals are exempt from tax. Payments received at the end of the scheme from the annuities purchased are taxable, however.
Therefore, if you have deposited more than INR 1.5 lakh in your Tier-I NPS account, say INR 2 lakh, then you will only be able to claim tax benefits on INR 1.5 lakh as per income tax laws. Note, the maximum amount that can be deposited to the Tier-I NPS account is not capped.
In NPS investment, the subscriber is assigned a unique and flexible Permanent Retirement Account Number (PRAN). There are two schemes under the NPS system-Tier 1 (restrictive-withdrawable retirement account) and Tier 2 (voluntary savings account with full withdrawal flexibility at any time). Tier 1 account withdrawal is not allowed until the subscriber reaches the age of 60 years or retirement.
Nevertheless, if a person wishes to leave the NPS (allowed only after 10 years of joining) before retirement or 60 years of age, then per cent of the corpus will have to be declared and only 20 per cent will be available for lump-sum withdrawal.
Nevertheless, there is a provision for partial withdrawal from Tier 1 account up to 25 per cent of the amount contributed by a person for specific purposes such as child/child marriage or higher education, the purchase of a house and self/family medical care, subject to certain conditions being met.
Tier 2 plan does not have income tax benefits. On the other hand, the Tier 1 account is covered under the EET (Excluded Exempt Taxed) system where contributions to the program, contributions return, and a defined portion of the account withdrawals are exempt from tax. Payments received at the end of the scheme from the annuities purchased are taxable, however.
Tax benefits
The tax-saving benefit at the time of NPS investment
can be claimed under three sections of the Income-tax Act, 1961. The following
sections are:-( I 80CCD (1), (ii) 80CCD (2), and (iii) 80 CCD (1b).
Section 80CCD (1)
Tax-benefit is available on an individual's
self-contributions to the NPS Tier-I account under section 80CCD (1). A person
can claim tax benefit on a maximum self contribution of Rs 1.5 lakh to the
Tier-I account in a financial year. The sum so deposited can be stated as a
deduction from the total income before tax up to INR 1.5 lakh, thereby reducing
the tax liability.Therefore, if you have deposited more than INR 1.5 lakh in your Tier-I NPS account, say INR 2 lakh, then you will only be able to claim tax benefits on INR 1.5 lakh as per income tax laws. Note, the maximum amount that can be deposited to the Tier-I NPS account is not capped.
Section 80CCD (2)
The individual will assert NPS benefits under 80CCD (2) when the
employer deposits the money on the individual's behalf in his / her NPS Tier-I
account. The employer can deposit up to 10 per cent of the individual's salary
according to current income tax laws.
Section 80CCD (1b)
Apart from the above tax-saving benefits, a person may claim
a deduction under 80 CCD (1b) in a financial year for a maximum of Rs 50,000.
The extra deduction was implemented during the 2015-16 fiscal year.