The Authorities of India rolled out the Nationwide Pension Scheme (NPS) for all of the residents of India method again on Could 1, 2009 and for company sector from December, 2011. Since then, NPS has grow to be one of the widespread funding and tax saving choices in India.
The numbers converse for themselves – The Complete belongings underneath administration (AUM) with NPS is now at Rs. 8.82 Lakh crore with Y-o-Y development of 23.45%. The variety of subscribers underneath numerous schemes underneath the Nationwide Pension System (NPS) rose to 624.81 lakh as at March 4th 2023 from 508.47 Lakh in March 2022 displaying a year- on- 12 months (Y-o-Y) improve of twenty-two.88%.
Most of my weblog readers have chosen NPS for 2 primary causes – i) for tax saving objective & ii) No different alternative however to speculate, as contribution to NPS has been made necessary for many of the Govt staff.
If you’re investing in NPS Scheme or planning to spend money on NPS, you want to concentrate on all the newest NPS Revenue Tax advantages which are presently accessible underneath previous Tax Regime and New Tax Regime (w.e.f FY 2020-21).
On this put up, lets focus on – What are the NPS Revenue Tax advantages for FY 2023-24 or AY 2024-25? Are you able to declare Revenue Tax Deduction on NPS contribution underneath New Tax Regime? Are there any tax deductions underneath NPS Tier-2 account? Beneath what sections of the IT act NPS investments might be claimed as tax deductions? What’s the funding proof to avail the tax profit underneath NPS for FY 2023-24?
Newest NPS Revenue Tax Advantages FY 2023-24 / AY 2024-25 underneath Previous & New Tax Regimes
Beneath are the assorted Revenue Tax Sections underneath which an NPS investor can declare Revenue Tax Deductions for FY 2023-24 / AY 2024-25 .
- Part 80C
- Part 80CCD (1)
- U/S 80CCD (1b)
- Part 80CCD (2)
“Beneath the brand new tax regime, the primary three deductions will not be accessible, however the fourth one continues to be accessible”
Revenue Tax Advantages underneath NPS Tier-1 Account for AY 2024-25
Tax Deduction underneath 80CCD(1) on NPS funding by Salaried particular person (besides Central Govt staff) :
- An Worker can contribute to Authorities notified Pension Schemes (like Nationwide Pension Scheme – NPS). The contributions might be upto 10% of the wage (salaried people).
- The utmost quantity that may be claimed as tax deduction is Rs 1.5 lakh u/s 80 CCD(1).
Previous Tax Regime : If you’re opting previous tax regime then you possibly can proceed claiming revenue tax deduction as listed within the above two factors.
New Tax Regime : If you’re going forward with New Tax Regime then you can’t declare revenue tax advantages u/s 80 CCD(1).
Tax Deduction underneath 80CCD(1) on NPS funding by Self-employed particular person :
- The self-employed (particular person apart from the salaried class) can contribute as much as 20% of their gross revenue and the identical might be deducted from the taxable revenue underneath Part 80CCD (1) of the Revenue Tax Act, 1961.
- The utmost quantity that may be claimed as tax deduction is Rs 1.5 lakh u/s 80CCD(1).
Beneath Previous Tax Regime : If you’re opting previous tax regime then you possibly can proceed claiming revenue tax deduction as listed within the above two factors.
New Tax Regime : If you’re going forward with New Tax Regime then you definitely can not declare revenue tax advantages u/s 80CCD(1).
Revenue Tax Deduction underneath 80CCD(2) on NPS funding for Non-Central Govt Staff :
- An employer may contributes to NPS scheme.
- The contribution quantity made by the employer might be claimed as tax deduction u/s 80CCD(2), topic to the brink restrict of, least of the under; Quantity contributed by an employer
- 10% of Primary wage + DA (or)
- Gross Complete revenue
- That is a further deduction which won’t kind a part of Sec.80C restrict.
- Self-employed people will not be eligible to say the NPS tax deduction u/s 80CCD(2).
Beneath previous & New Tax Regime : If you’re choosing New Tax Regime in your Revenue Tax Return then there may be now a threshold restrict u/s 80CCD(2), with efficient from FY 2020-21. Your employer can contribute to your NPS account as talked about within the above factors. Nonetheless, in case your employer’s contributions underneath Sec 80CCD(2) are greater than Rs 7,50,000 a 12 months (together with EPF and Superannuation), then such exceeding contributions are taxable revenue within the arms of the worker. The curiosity earned on over and above Rs 7.5 lakh steadiness can also be taxable.
Revenue Tax Deduction underneath 80CCD(2) on NPS funding for Central Govt Staff :
- The contribution quantity made by the employer (Central Govt on this case) might be claimed as tax deduction u/s 80CCD(2), topic to the brink restrict of, least of the under;Quantity contributed by an employer
- 14% of Primary wage + DA (or)
- Gross Complete revenue
- The Centre will now contribute 14% of fundamental wage to Govt staff’ pension corpus, up from 10%. That is w.e.f April 2019.
- That is a further deduction which won’t kind a part of Sec.80C restrict.
Beneath previous & New Tax Regime : If you’re choosing New Tax Regime in your Revenue Tax Return then there may be now a threshold restrict u/s 80CCD(2), with efficient from FY 2020-21. Your employer can contribute to your NPS account as talked about within the above factors. Nonetheless, in case your employer’s contributions underneath Sec 80CCD(2) are greater than Rs 7,50,000 a 12 months (together with EPF and Superannuation), then such exceeding contributions are taxable revenue within the arms of the worker. The curiosity earned on over and above Rs 7.5 lakh steadiness can also be taxable.
NPS Extra Tax Deduction u.s 80CCD(1b)
A further tax good thing about Rs 50,000 might be claimed u/s 80CCD (1b) by the salaried or self-employed people.
Kindly be aware that the Complete Deduction underneath part 80C, 80CCC and 80CCD(1) collectively can not exceed Rs 1,50,000 for the monetary 12 months 2020-21. The extra tax deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh restrict.
Beneath Previous Tax Regime : If you’re opting previous tax regime then you possibly can proceed claiming revenue tax deduction of Rs 50,000 u/s 80CCD(1b).
New Tax Regime : If you’re going forward with New Tax Regime then you definitely can not declare extra revenue tax deduction of Rs 50,000 u/s 80CCD(1b).
Revenue Tax Advantages underneath NPS Tier-2 Account for FY 2023-24
The Tier II Nationwide Pension Scheme account is rather like a financial savings account and subscribers are free to withdraw the cash as and each time they require.
Tax Deduction underneath 80c for NPS Tier-2 funding
The contributions by the federal government staff (solely) underneath Tier-II of NPS can be lined underneath Part 80C for deduction as much as Rs 1.5 lakh for the aim of revenue tax, with a three-year lock-in interval. That is w.e.f April, 2019.
For different NPS subscribers, there are not any tax advantages accessible on NPS investments in Tier-2 accounts.
Beneath Previous Tax Regime : If you’re opting previous tax regime then you possibly can proceed claiming revenue tax deduction u/s 80C.
New Tax Regime : If you’re going forward with New Tax Regime then you definitely can not declare these contributions u/s 80c.
NPS Maturity Proceeds & Withdrawal Guidelines FY 2023-24
Beneath are the widespread guidelines which are relevant underneath previous and new tax regimes relating to NPS Maturity proceeds and withdrawals;
NPS Tier-1 Maturity proceeds on Retirement is Tax-exempt
- After attaining 60 years of age, you might be allowed to withdraw 60% of the whole Corpus quantity and at the very least 40% of the accrued wealth within the NPS account must be utilized for buy of annuity/pension plan.
- With efficient from 1st April, 2019, the 60% NPS withdrawal is totally tax-exempt.
- In case the whole corpus within the account is lower than Rs. 2 Lakhs as on the Date of Retirement (Authorities sector)/attaining the age of 60 (Non-Authorities sector), the subscriber (apart from Swavalamban subscribers) can avail the choice of full withdrawal. Nonetheless 60% of this withdrawal can be tax-exempt and 40% is taxable.
NPS Tier-1 Account & Partial withdrawals
The Tier 1 account is non-withdrawable until the individual reaches the age of 60. Nonetheless, partial withdrawal earlier than that’s allowed in particular instances.
- Within the newest rule change (Funds 2017), PFRDA (Pension Fund Regulatory And Growth Authority) has relaxed the withdrawal norms to the impact that now the subscribers can withdraw as much as 25% of contributions ranging from the third 12 months of opening of NPS.
- Kindly be aware that such partial withdrawals are tax-exempt. (The NPS partial withdrawals made earlier than 1.04.2017 are taxable.)
The withdrawals from NPS Tier 2 account don’t include any revenue tax profit. The tax assessee is answerable for taxation on any good points arising out of investments in NPS Tier-II account and such good points are taxable as per the relevant revenue tax slab charges.
Can NRIs declare Tax deductions on NPS AY 2024-25?
Whether or not you might be eligible to say tax advantages is dependent upon the tax regime you go for for FY 2023-24.
Non-resident Indians (NRIs) are eligible to spend money on the NPS scheme identical to resident Indians. The Rs 50,000 extra tax profit on NPS can also be accessible to NRIs. These tax deductions can be found underneath previous tax regime.
The switch of funds needs to be routed by a non-resident exterior account (NRE) or non-resident odd account (NRO). The one distinction is that the previous is a repatriable resident account whereas the latter is non-repatriable one.
What’s the funding proof to avail the tax profit underneath NPS?
The Subscriber can submit the Transaction Assertion as an funding proof. Alternatively, Subscriber from “All Residents of India” may obtain the receipt of voluntary contribution made in Tier I account for the required monetary 12 months from NPS account NSDL log-in. It may be downloaded from the sub menu “Assertion of Voluntary Contribution underneath Nationwide Pension System (NPS)” accessible underneath primary menu “View” in NPS account log-in.
Kindly be aware that this text isn’t a advice to spend money on NPS Scheme. It’s only meant to offer data on NPS Revenue tax advantages FY 2023-24.
Proceed studying:
(Put up first printed on : 23-Sep-2023)
