National Pension System (NPS)

I always wondered if there’s a way to increase this limit of deductions greater than 1.5L u/s 80C … Is it possible? If so then how can one do it?

Hi @Swaraj_Mangaonkar

There are certain deductions that you can claim by Investing in NPS (National Pension System)

  1. The contribution to NPS is deductible up to Rs 1,50,000 under section 80CCD(1).
  2. Over and above you can further claim the additional benefit of Rs 50,000 under section 80CCD(1B).

So, overall you can reduce your taxable income by Rs 2,00,000.
And one can report deductions under section 80C while filing an ITR.

Hope it helps.

May I know how does NPS works? And its investment process?

Hello @Jigar_Marvaniya

The primary goal of NPS is to provide pension after retirement (saving plan).

  • An individual holding an NPS account have to make a minimum contribution of Rs. 1000 P.A in tier 1 account.
  • It matures when you turn 60.
  • You can withdraw up to 60% of the amount (corpus) tax-free, when you are invested till retirement.
  • The remaining money, ideally 40% of the total invested amount, should be used to buy an annuity plan, to get a lifelong pension.

NPS accounts are of two types, tier I account and tier II account.
The tax benefits are only applicable to tier-I accounts.

There are multiple PFMs, Investment options (Auto or Active), and four Asset Classes i.e. Equity, Corporate debt, Government Bonds, and Alternative Investment Funds.

Here is an article to know more about it and the process details.

Hope we have addressed your query.

As it is known, the maximum amount of deduction that can be claimed under section 80C is 1,50,000, then if I invest in NPS say, 1.5L & in ELSS 2L, what would be the deduction amount that can be availed?

@Muskan_Balar Can I invest only in Tier 2 NPS and not Tier 1 ? May I know the comparison between Tier 1 and Tier 2 account?

Hi @akash_jhaveri

You can open the NPS Tier II account only when you already have a Tier I account.

  • Tier 1 account is mandatory to open, while tier 2 is voluntary and can only open by members of tier 1.
  • In tier 1, withdrawal is restricted, whereas in tier 2 subscribers are free to withdraw at any time.
  • Only tier 1 account members are eligible for tax benefits.
  • Minimum contribution for account opening in tier 1 is Rs. 500 and in tier 2 is Rs. 1000.
  • Minimum NPS contribution in a financial year Rs. 500 towards tier 1 account and Rs. 250 towards tier 2 account.
  • Taxation on withdrawal for tier 1 - entire corpus is tax-exempt, at maturity. For tier 2 - One may withdraw the entire corpus, which is added to income and taxed according to the tax bracket they are in.

Hope this helps.