NPS Tax Benefit F.Y 2020-21. Effective from F.Y
2020-21, a separate tax assessor will have the option to take a new tax slab
rate excluding existing income tax deductions and exemptions, such as HRA,
Section 80C, home loan tax benefits, etc.
So, to get the benefit of the new tax system below,
which are optional, taxpayers have to pay income tax exemption.
Does this create confusion as to whether income tax
benefits will accrue to popular investment options such as NPS (National
Pension System)?
The Central Government has introduced the National
Pension Scheme (NPS) for all citizens of
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Part A&B and Form 16 Part B]
Most of the readers of my blog have chosen NPS for two
main reasons - i) for tax saving purposes and ii) for most of the government
employees no option other than investing in NPS has been made mandatory.
If you are investing in an NPS scheme or planning to
invest in NPS, you need to be aware of all the latest NPS income tax benefits
currently available under the old tax regime and the new tax regime (Budget
2021-22).
In this post, let’s discuss- What are the NPS income
tax benefits for FPS 2020-21 or AY 2021-22? Can you claim income tax exemption
on NPS investment under the new tax system? Under which section of the
Information Technology Act can NPS investment be claimed as a tax deduction?
What is the proof of investment to get tax benefits under NPS?
Latest NPS income tax benefits for the financial year
2020-21 / AY 2021-22 under the old and new tax system
Below are the various income tax categories under
which an NPS investor can claim an income tax deduction for the financial year
2019-20 / A.Y 2019-21.
Section 80CCD (1)
Section 80CCD (2)
Picture of NPS
NPS Tax
Benefit F.Y 2021-22. Income tax benefit under NPS Tier-1 account for AY 2021-22
Tax deduction under 80CCD (1) on NPS investment of
salaried person (excluding Central Government servant):
An employee can contribute to government advertised
pension schemes (such as the National Pension Scheme - NPS). Contributions can
be up to 10% of salary (salaried person).
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A&B and Form 16 Part B]
The maximum amount that can be claimed as a tax
deduction U/s 80CCD (1) Rs.1.5 Lakh
Old tax system: If you are opting for the old tax
system, you can claim the income tax exemption listed in the above two points.
Tax reduction under 80CCD (1) on NPS investments by
self-employed persons:
Self-employed (persons other than salaried class) can
contribute up to 20% of their total income and it can be deducted from the
taxable income under section 80CCD (1) of the Income-tax Act, 1961.
The maximum amount that can be claimed as a tax
deduction U/s 80CCD (1) is Rs. 1.5 Lakh.
Under the old tax system: If you choose the old tax
system, you can claim the income tax exemption listed in the above two points.
Income tax deduction under 80CCD (2) on NPS investment
for non-central government employees:
The amount of contribution made by the employer may be
claimed as tax deduction under 80CCD (2), subject to the lower minimum limit;
Amount paid by an employer
10% of basic salary + DA (or)
Total income
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per Andhra Pradesh State employees Salary Pattern + Automated Income Tax Form
16 Part A&B and Form 16 Part B]
This is an additional deduction that will not be part
of the Sec.80C range.
Self-employed persons are not eligible to claim NPS
tax deduction under 80CCD (2).
Income tax deduction under 80CCD (2) on NPS
investments for Central Government employees:
The amount of contribution made by the employer
(Central Government in this case) may be claimed as tax deduction under 80CCD
(2), subject to the lower minimum limit; Amount paid by an employer
14% of basic salary + DA (or)
Total income
The centre will now contribute 14% of the basic salary
to the pension corpus of government employees, up from 10%. This is from April 2019.
This is an additional cut that will not be part of the
Sec.80C range.
NPS
Additional Tax Deduction U/s 80CCD (1B)
Salary or self-employed persons can claim additional
tax benefit of Rs. 50,000 under 80CCD (1B).
Please note that the total reduction under sections
80C, 80CCC and 80CCD (1) may not exceed Rs.1,50,000 for the financial year
2020-21. Additional tax deduction of 50,000 U/ s 80CCD (1B) has exceeded the
limit of Rs 1.5 lakh.
Under the old tax system: If you opt for the old tax
system, you can claim an income tax deduction of 80CCD (1B) 50,000/-
