Tax Benefits of NPS: All You Need to Know Before Choosing It

Updated on: 17 Oct 2024

Along with the tax benefits of NPS, there are multiple reasons to subscribe to this government-backed savings scheme for your future. Ever since its introduction, retirement planning has become simplified for Indians. Now, instead of just relying on savings for old age, you can grow money to enjoy a comfortable retirement life.

This way, you can get market-linked returns and savings benefits while you’re working and regular income benefits after the age of 60. That said, it is important to get a comprehensive picture of what NPS has to offer. Read on to know its features, benefits, tax-saving options and more.

Brief Introduction to NPS

It’s a savings/retirement plan backed by the Government of India, providing a structured way of growing a retirement fund. Here are its noteworthy features:

It’s regulated by the Pension Fund Regulatory and Development Authority (PFRDA)
The National Pension Scheme for tax benefits is also a popular reason why individuals subscribe to it
With this plan, you can invest in a fixed amount up till the year of your retirement
This pension scheme is available for all Indians between the age of 18 and 70 years
After maturity, the pension holder will receive a monthly fixed income during retirement
Depending on whether you are a first-time subscriber, you can choose from Tier-I and Tier-II accounts
You can start an account with a minimum of ₹500 (Tier-I) or ₹1,000 (Tier-II) and maintain it with an annual payment of up to ₹1,000

Also Read: Best Tax Saving Investment Options In India

Tax-savings in NPS

The tax benefits of NPS fall under different sections of the Income Tax Act of 1961, as explained below.

Section	Condition	Exemption
Section 80CCD (1)	Self-contribution by NPS subscriber	Deduction of up to 10% of salary up to ₹1.5 lakhs
Section 80CCD(1B)	Self-contribution by NPS subscriber	Deduction of up to ₹50,000 over and above the deduction of ₹1.5 lakhs
Section 80CCD (2)	Employer contributions in corporate sector	Deduction up to 10% of salary up to ₹1.5 lakhs
Section 80CCD (2)	Employer contributions in government sector	Deduction up to 14% of salary up to ₹1.5 lakhs
Section 80CCD (1)	Contributions made by self-employed individuals	20% of gross income up to ₹1.5 lakhs
Section 10(12B)	Partial withdrawal	25% of the contribution amount

Thus, you can enjoy up to ₹1.5 lakhs tax saving with the National Pension Scheme. This applies irrespective of whether you are self-employed, government, or a corporate employee.

Also Read: How To Invest Your Epf Savings

Benefits of the National Pension Scheme

Apart from the tax benefits of the National Pension Scheme, here are other advantages you can enjoy with it.

Pension After Retirement

Enjoy a regular pension with this option to maintain the cash flow during your golden years.

Risk-based Investment

The investment made in different assets is according to your risk appetite.

Professional Management

Financial experts invest the funds in the most lucrative scheme by analysing the market conditions, ensuring the best results.

Flexibility

Choosing a comfortable subscription amount gives you flexibility, which you can deposit at any time of the year.

Partial Withdrawal Benefits

You also have the option to make a partial withdrawal to meet your urgent financial requirements, such as children’s education, wedding or buying property.

It also has straightforward eligibility criteria, allowing Indians to easily make small investments toward a better financial future. However, if you need funds for your current financial requirements, then you must opt for a swift and flexible lending solution such as a personal loan.

One such option you can choose for your planned or emergency financial requirement is the Fibe Instant Cash Loan. We at Fibe offer up to ₹5 lakhs with a complete digital application process and minimum documentation.

Enjoy pocket-friendly interest rates for a comfortable repayment plan. You can also choose from a flexible tenure option of up to 36 months, as per your financial capacity. We also opt for an alternative credit scoring mechanism which allows us to extend loans to applicants without high credit scores. Download our Personal Loan App on your smartphone to apply online!

FAQs on Benefits of NPS

What are the benefits of NPS in saving tax?

There are multiple types of tax benefits of the National Pension Scheme, some of which include:

Tax deduction on self-contribution under Section 80CCD (1)
Tax benefit on partial withdrawal under Section 10(12B)
NPS tax exemption on annuity purchase under Section 80CCD (5) and Section 80CCD (3)
NPS tax benefit on a lump sum withdrawal under Section 10

Is it better to pay tax or invest in NPS?

While you can enjoy tax savings with the National Pension Scheme during employment, it is not as tax-efficient after maturity. Therefore, it is up to you to choose the options wisely, based on your financial standing or as per the expert’s recommendation.