As a tax-payer, you’d be aware of the tax-saving options under Section 80-C, which are life insurance premium, HRA, EPF, PPF, NSC, ELSS, and interest on home loans.

However, as your CTC increases, you will easily exhaust the 1.5 Lakh limit. In this Investor Education Originals video, you will learn how to get extra ₹50,000 deductions with an NPS account.

NPS (National Pension System) is a retirement investment option. One can open an eNPS account from the NSDL portal itself. Salaried employees have an option to open it through their employers as well.
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Section 80CCD (1) is a specific section dedicated to NPS contribution. Under this section, you may avail tax deduction of up to ₹1.5 lakh against self-contribution to NPS account. The sub-section 80CCD (1B) makes you eligible for availing an extra Rs 50,000 tax deduction against self-contribution to NPS.

If you are a salaried employee, you get some additional tax benefit under Section 80CCD (2). This section pertains to employer’s contribution to your NPS account.

The maximum tax deduction permissible against NPS contribution is 10% of the annual basic salary + Dearness allowance. And for Self-employed people, the limit is 20% of their gross annual income.

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The National Pension Scheme (NPS) is a government-mandated retirement saving scheme in India that was launched back in 2004. The scheme was initially meant for government employees, but it was later extended to other categories of workers. The NPS is an excellent retirement planning option that seeks to provide financial security to Indian citizens during their retirement years. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Under the scheme, investors can accumulate long-term savings and benefit from market-linked returns. The contributions made to the NPS are invested in a range of financial instruments such as equities, government securities, and corporate bonds. The scheme offers two types of accounts – Tier I and Tier II. Tier I is a mandatory account that is meant for long-term savings for retirement, while Tier II is a voluntary account that allows members to withdraw their savings whenever they want.

One of the most significant advantages of investing in the NPS is that investors are eligible for tax benefits under section 80CCD(1) and 80CCD(2) of the Income Tax Act. Under Section 80CCD(1), investors can claim a tax deduction of up to 10% of their gross income for contributions made to the NPS, subject to a maximum of ₹1.5 lakh per annum. Under Section 80CCD(2), an additional tax deduction of up to ₹50,000 per annum is available on contributions made by an employer to the employee’s NPS account. This extra tax deduction is over and above the limit of ₹1.5 lakh available under Section 80C.

The government has offered this additional tax deduction of ₹50,000 per annum to encourage more people to invest in NPS and secure their retirement. This tax benefit aims to encourage people to save more for retirement while also reducing their tax burden. The NPS provides an opportunity to accumulate a substantial retirement corpus through regular contributions, and the additional tax benefit makes it a highly attractive option.

In conclusion, the National Pension Scheme (NPS) is an excellent retirement planning option that offers investors the opportunity to accumulate long-term savings and earn market-linked returns. The scheme offers tax benefits to investors, under Section 80CCD(1) and 80CCD(2) of the Income Tax Act, making it an attractive option for investors looking to reduce their tax liability. The additional tax deduction of ₹50,000 per annum makes it even more appealing, and investors should take advantage of this benefit to secure their retirement.