Published By: Business Desk
Last Updated: September 30, 2023, 07:00 IST
Tax deductions up to Rs 1.5 lakh per annum for NPS investments can be claimed under Section 80C. (Representative image)
The National Pension Scheme (NPS) is a market-linked product designed to provide retirement benefits to investors.
In order to reduce the burden of income tax, tax payers are increasingly investing in various tax-saving instruments. The National Pension Scheme (NPS) is one such savings option which comes with tax benefits and helps investors to build a retirement corpus fund.
Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS has emerged as a popular investment option due to its secured return and tax benefits.
What is NPS?
The National Pension Scheme, launched in January 2004, was initially designed for government employees. However, it was extended to all Indian citizens in 2009. NPS is a market-linked product, which means its returns are contingent on the fund’s performance.
Under Section 80CCD(2) of the Income Tax Act, the contributions made by the employer towards NPS are eligible for tax deductions but it should not exceed 10% of the employee’s salary in a financial year.
Here’s a closer look at how NPS and other tax-free perks can help cut income tax by up to Rs 1 lakh:
1. Government initiatives like the Pradhan Mantri Awas Yojana (PMAY) and Delhi Development Authority (DDA) Housing Scheme aim to make housing more accessible in India. Sections 80C and 24(b) offer tax deductions for homebuyers. Under Section 80C, the entire annual income spent on the repayment of the principal amount is eligible for deductions of up to Rs 1.5 lakh. Up to Rs 2 lakh per year, is permitted for deductions under Section 24(b) on the interest component of a housing loan.
2. Tax deductions under Section 80D can be claimed for premiums paid on health insurance policies. The amount of exemption varies depending on the age of the life insured.
3. Various government-mandated schemes offer not only high returns on investments but also tax deductions. Under Section 80C, individuals can claim up to Rs 1.5 lakh on investments in various tax-saving schemes.
4. Section 80C provides deductions for premium payments on certain insurance plans, while Section 10(10D) allows tax deductions on the sum received at maturity or in the event of early death.
Policies purchased after April 1, 2012, are eligible for benefits under Section 80C, provided premiums are less than 10% of the sum assured. Policies bought before April 1, 2012, can be claimed under Section 80C as long as premiums do not exceed 20% of the sum assured.
Additionally, annuity payments on life insurance plans funded through monthly salaries are eligible for tax exemptions of up to Rs 1.5 lakh under Section 80CCC. Certain pension funds under Section 23AAB are also eligible for exemptions of up to Rs 1.5 lakh under Section 80CCD(1).
