What are the Tax benefits of NPS?

Tier-I account - Tax benefits on Contributions

• 1. NPS Contributions are eligible for tax deduction u/s 80 CCD (1) of Income Tax Act upto 14% of basic + DA or upto 20% of Gross Income for self-employed within the overall ceiling of ₹1.50 Lacs under Sec. 80 CCE.
• 2. An additional deduction upto ₹50,000/- is available u/s 80CCD 1(B) of Income Tax Act.
• 3. In case the subscriber receives contributions from the employer also, tax deduction under section 80 CCD (2) of Income Tax Act may be claimed by the subscriber in addition to the tax benefits available under Sec. 80 CCE, subject to an aggregate limit of ₹7.5 lakh of contributions made towards NPS, Recognized Provident Fund and Approved Superannuation Fund Superannuation Fund.

Tier-I account - Tax implications on Withdrawals / Exit

• Maximum 60% of the total corpus received as lumpsum at the time of exit is not treated as income u/s 10 (12A) of Income Tax Act
• Amount utilized for purchase of annuity plan from ASP on exit (minimum 40% mandatory upto 100% of corpus) is not treated as income u/s 80CCD (5) of Income Tax Act
• Goods and Service Tax (currently 1.8%) is not applicable on annuity plan purchased through NPS on exit.
• Amount received from partial withdrawal are tax exempt u/s 10 (12B) of Income Tax Act.

Tier-Il account:

• i. No tax benefits are available on contributions made in an NPS Tier-ll account.
• ii. No tax rebates/special treatment for the gains arising out of investment in NPS Tier-Il. The assesses shall be liable for taxation as per the marginal tax rate applicable to him/her.