Friday, January 8, 2016

How to save additional tax by investing in National Pension System

Good News for all income taxpayers of Indian. Now, they can reduce additional 50 Thousand INR on taxable income by investing in National Pension System for the financial year 2015-2016. This may result in the tax saving of around 15 thousand INR, which is not a small amount. Add another 15K and you can have a foreign trip.


For those who doesn't know what is NPS or National Pension System, also known as National Pension Scheme, National Pension System is a contribution scheme regulated by PFRDA which helps you to save additional tax and build a huge corpus for your retirement. You can make the regular contribution as per your convenience e.g. monthly, yearly and choose one of the 8 fund managers to manage your funds. They are reputed mutual fund house and expert in investing money on the Indian market and that's why chose by PFRDA.


Tax Exemption by Investing on National Pension System

Recent Union Budget 2015-16 announcements have provided additional tax benefits of up to Rs.15,450 by investing up to Rs.50,000 in NPS u/s 80CCD(1B) over and above the limit of Rs.1,50,000 u/s 80C. This means you can invest in NPS for tax saving even if you have exhausted your 80C limit.


Here are some important points related to investing in NPS for tax saving purpose

80C limit not exhausted
1. If you have not exhausted your 80C Limit than you can invest up to 10% of basic salary through the employer. This is exempt from tax under section 80CCD(2).

2. You can also invest up to Rs 50,000 INR on your own. This is exempt from tax under section 80CCD(1B) over and above section 80C.


3. You can invest 10% of basic salary or total gross income on your own. This is exempted from tax under 80CCD(1) within Rs 1.50 lacs limit under section 80C.

80C limit exhausted
4. Even if your 80C limit has exhausted, you can invest up to 10% of basic salary through the employer. This is exempt from tax u/s 80CCD(2).


5. You can invest up to 50K on your own. this is exempt from tax under section 80CCD (1B) over and above section 80C.

Here is a nice infographic which clearly outlines tax benefits of National Pension System, courtesy, HDFC Bank.  Pension arm of HDFC bank, http://www.hdfcpension.com/ also allow you to invest in NPS online. Other banks like ICICI also allow you to subscribe on National Pension System but you need to visit their branches.




That's all about National Pension System. It's low-cost investment option which provides attractive market linked returns. It offers dual benefits of tax saving as well building a buys monthly retirement income. You can, at least, reduce 50K from taxable income even if you have already invested 1.5 lac under section 80C. Even NRIs can invest in National Pension System. It's a great idea from the government, given we don't have social security cover provided by other developed nations.

1 comment:

  1. Kotak Mahindra is offering a NMC (Non Maintenance Charges) waived savings account with an NPS account by investing minimum INR 2000 per month, which is a very good offer.

    Here is the full text of email I received from them:

    National Pension System helps you save taxes as well as accumulate pension wealth for the future.
    NPS - A Smart Choice

    Get upto 50,000* of Tax Benefits per year
    Get an NMC (Non Maintenance Charges) waived savings account with an NPS account by investing minimum 2000# per month
    Asset allocation flexibility across equity, corporate bonds, and government securities
    Promoted & regulated by Government of India

    , I am thinking to invest some money on NPS, not sure if they allows NRI to do so, going to ask them soon.

    ReplyDelete

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