We all want to save
taxes. We all invest to save taxes. Some invest in PPF, some in ELSS, some in
NSC, some invest in 5-year bank fixed deposits. But, we all know the maximum
investment limit for saving tax under section 80C is Rs. 1,50,000. So, we all
want to save more tax, over and above 80C. But, there are only a limited number
of investment options which provide tax exemption other than 80C. One of those
options is NPS – National Pension System.
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Introduced in Budget
2015, your contribution in NPS can save you tax of up to Rs. 15,450, if you are
in the highest tax bracket of 30%. NPS provides an additional deduction of Rs.
50,000 from your taxable income. Interested? Read on.
So, let’s start our
journey to know more about this tax saving investment avenue and see whether it
truly makes sense to invest in it or it is better to pay tax and invest in
mutual funds to earn higher tax-free returns.
How to open an NPS
account?
Online Account – There are 2 ways to open an NPS account online – one,
directly through NPS
Trust’s website and
two, through an intermediary, like your bank, ICICI Direct, HDFC Securities etc.
Offline Mode – You can also approach a POS (Point of Service) and get
this account opened.
Documents Required – PAN card copy, address proof copy, 2 passport-size
photographs, investment cheque and Duly Filled Subscriber Registration Form.
Exclusive Tax
Benefit u/s 80CCD (1B)
If you decide to
invest in NPS, you can avail a tax exemption of Rs. 50,000 from your taxable
income. As the minimum investment requirement is Rs. 6,000, you can contribute
any amount between Rs. 6,000 and Rs. 50,000 to save tax.
Which Account is
eligible for Rs. 50,000 Deduction – Tier I or Tier II? – Your contribution to Tier I account is eligible for up
to Rs. 50,000 tax deduction u/s 80CCD (1B). Tier II account does not entitle
you to any tax deduction.
Minimum/Maximum
Annual Contribution – As per the NPS
rules, you need to contribute at least Rs. 6,000 in this account in a financial
year. However, you can do so in multiple instalments and minimum contribution
in a single contribution is Rs. 500.
However, there is no
upper limit on your contribution to NPS. You can contribute any amount to your
NPS account. But, as far as tax benefit is concerned, you can have only up to
Rs. 50,000 in tax deduction.
