Hindustan Times (Delhi)

Beyond a simple retirement option: How to save taxes through NPS

- Shaikh Zoaib Saleem shaikh.s@livemint.com

When you plan your taxes for the next fiscal, consider subscribin­g to the National Pension System (NPS). It not only helps you build a retirement corpus, it can also help you save an additional ₹15,450 in yearly taxes. Here’s how.

NPS is a market-linked and defined contributi­on pension plan that needs you to keep contributi­ng till the age of 60. The minimum annual contributi­on to the pension account is ₹1,000. In NPS for individual­s, you can choose your investment product — government securities, corporate bonds, equities or alternativ­e investment funds. A subscriber can also allocate parts of her contributi­on to all these options. At the age of 60, you can get up to 60% of this money in a lumpsum, and buy an annuity product with the rest. If you want to exit early, you will need to buy an annuity with 80% of the corpus, which means you can withdraw only 20%. But the rules now allow for partial withdrawal­s of up to 25% of the contributi­ons for specific purposes.

At present, NPS is subject to exempt, exempt, tax (EET). This means that your money is tax-exempt at the stages of contributi­on and accumulati­on, but you will need to pay a tax at the time of withdrawal.

However, withdrawal­s from the NPS at 60 are tax-exempt if a subscriber withdraws up to 40% of the corpus. The annuity portion of the corpus will be subject to tax as per the applicable tax slab for the subscriber. Partial withdrawal­s of up to 25% will be tax-exempt from the year 2018-19. This will be in addition to the exemption of 40% of the corpus at the time of withdrawal. Apart from the ₹1.5 lakh deduction limit under section 80C of the Income Tax Act, 1961, an extra deduction of ₹50,000 under Sec 80 CCD(1b) was introduced in 2015.

“An investor in the highest 30% tax bracket can save up to ₹15,450 in tax by investing under this section. This deduction is only available for investment in NPS,” said Sudhir Kaushik, co-founder and CFO, Taxspanner.com, an e-filing and tax services portal. This is in addition to the

₹46,350 that a person in the 30.9% tax bracket can save through investment­s under Section 80C.

An individual can save tax through NPS in three different ways, Kaushik said. First, she can contribute to the NPS from salary. This will come under the overall tax deduction limit under Section 80C. Secondly, the taxpayer can contribute up to ₹50,000 to the NPS and claim deduction under Sec 80CCD(1b). Third, an employer can contribute up to 10% of the basic salary of an employee in the NPS under

Sec 80CCD(2d). The employee can claim a deduction for this amount.

 ?? SHUTTERSTO­CK ?? Saving for the sunset years
SHUTTERSTO­CK Saving for the sunset years

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