The Authorities of India rolled out the Nationwide Pension Scheme (NPS) for all of the residents of India method again on Could 1, 2009 and for company sector from December, 2011. Since then, NPS has change into one of the crucial standard funding and tax saving choices in India.
The numbers communicate for themselves – The Whole property beneath administration (AUM) with NPS is now at Rs. 8.82 Lakh crore with Y-o-Y development of 23.45%. The variety of subscribers beneath varied schemes beneath the Nationwide Pension System (NPS) rose to 624.81 lakh as at March 4th 2023 from 508.47 Lakh in March 2022 displaying a year- on- yr (Y-o-Y) enhance of twenty-two.88%.
Most of my weblog readers have chosen NPS for 2 foremost causes – i) for tax saving function & ii) No different selection however to take a position, as contribution to NPS has been made necessary for many of the Govt staff.
If you’re investing in NPS Scheme or planning to spend money on NPS, you want to pay attention to all the newest NPS Earnings Tax advantages which can be at the moment accessible beneath outdated Tax Regime and New Tax Regime (w.e.f FY 2020-21).
On this submit, lets focus on – What are the NPS Earnings Tax advantages for FY 2023-24 or AY 2024-25? Are you able to declare Earnings Tax Deduction on NPS contribution beneath New Tax Regime? Are there any tax deductions beneath NPS Tier-2 account? Beneath what sections of the IT act NPS investments may be claimed as tax deductions? What’s the funding proof to avail the tax profit beneath NPS for FY 2023-24?
Newest NPS Earnings Tax Advantages FY 2023-24 / AY 2024-25 beneath Previous & New Tax Regimes
Beneath are the assorted Earnings Tax Sections beneath which an NPS investor can declare Earnings Tax Deductions for FY 2023-24 / AY 2024-25 .
- Part 80C
- Part 80CCD (1)
- U/S 80CCD (1b)
- Part 80CCD (2)
“Beneath the brand new tax regime, the primary three deductions will not be accessible, however the fourth one continues to be accessible”
Earnings Tax Advantages beneath NPS Tier-1 Account for AY 2024-25
Tax Deduction beneath 80CCD(1) on NPS funding by Salaried particular person (besides Central Govt staff) :
- An Worker can contribute to Authorities notified Pension Schemes (like Nationwide Pension Scheme – NPS). The contributions may be upto 10% of the wage (salaried people).
- The utmost quantity that may be claimed as tax deduction is Rs 1.5 lakh u/s 80 CCD(1).
Previous Tax Regime : If you’re opting outdated tax regime then you possibly can proceed claiming revenue tax deduction as listed within the above two factors.
New Tax Regime : If you’re going forward with New Tax Regime then you can’t declare revenue tax advantages u/s 80 CCD(1).
Tax Deduction beneath 80CCD(1) on NPS funding by Self-employed particular person :
- The self-employed (particular person aside from the salaried class) can contribute as much as 20% of their gross revenue and the identical may be deducted from the taxable revenue beneath Part 80CCD (1) of the Earnings Tax Act, 1961.
- The utmost quantity that may be claimed as tax deduction is Rs 1.5 lakh u/s 80CCD(1).
Beneath Previous Tax Regime : If you’re opting outdated tax regime then you possibly can proceed claiming revenue tax deduction as listed within the above two factors.
New Tax Regime : If you’re going forward with New Tax Regime then you definately can’t declare revenue tax advantages u/s 80CCD(1).
Earnings Tax Deduction beneath 80CCD(2) on NPS funding for Non-Central Govt Workers :
- An employer may also contributes to NPS scheme.
- The contribution quantity made by the employer may be claimed as tax deduction u/s 80CCD(2), topic to the brink restrict of, least of the under; Quantity contributed by an employer
- 10% of Primary wage + DA (or)
- Gross Whole revenue
- That is a further deduction which is not going to type a part of Sec.80C restrict.
- Self-employed people will not be eligible to assert the NPS tax deduction u/s 80CCD(2).
Beneath outdated & New Tax Regime : If you’re choosing New Tax Regime in your Earnings Tax Return then there may be now a threshold restrict u/s 80CCD(2), with efficient from FY 2020-21. Your employer can contribute to your NPS account as talked about within the above factors. Nonetheless, in case your employer’s contributions beneath Sec 80CCD(2) are greater than Rs 7,50,000 a yr (together with EPF and Superannuation), then such exceeding contributions are taxable revenue within the fingers of the worker. The curiosity earned on over and above Rs 7.5 lakh stability can be taxable.
Earnings Tax Deduction beneath 80CCD(2) on NPS funding for Central Govt Workers :
- The contribution quantity made by the employer (Central Govt on this case) may be claimed as tax deduction u/s 80CCD(2), topic to the brink restrict of, least of the under;Quantity contributed by an employer
- 14% of Primary wage + DA (or)
- Gross Whole revenue
- The Centre will now contribute 14% of primary wage to Govt staff’ pension corpus, up from 10%. That is w.e.f April 2019.
- That is a further deduction which is not going to type a part of Sec.80C restrict.
Beneath outdated & New Tax Regime : If you’re choosing New Tax Regime in your Earnings Tax Return then there may be now a threshold restrict u/s 80CCD(2), with efficient from FY 2020-21. Your employer can contribute to your NPS account as talked about within the above factors. Nonetheless, in case your employer’s contributions beneath Sec 80CCD(2) are greater than Rs 7,50,000 a yr (together with EPF and Superannuation), then such exceeding contributions are taxable revenue within the fingers of the worker. The curiosity earned on over and above Rs 7.5 lakh stability can be taxable.
NPS Extra Tax Deduction u.s 80CCD(1b)
A further tax advantage of Rs 50,000 may be claimed u/s 80CCD (1b) by the salaried or self-employed people.
Kindly be aware that the Whole Deduction beneath part 80C, 80CCC and 80CCD(1) collectively can’t exceed Rs 1,50,000 for the monetary yr 2020-21. The extra tax deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh restrict.
Beneath Previous Tax Regime : If you’re opting outdated tax regime then you possibly can proceed claiming revenue tax deduction of Rs 50,000 u/s 80CCD(1b).
New Tax Regime : If you’re going forward with New Tax Regime then you definately can’t declare extra revenue tax deduction of Rs 50,000 u/s 80CCD(1b).
Earnings Tax Advantages beneath NPS Tier-2 Account for FY 2023-24
The Tier II Nationwide Pension Scheme account is rather like a financial savings account and subscribers are free to withdraw the cash as and every time they require.
Tax Deduction beneath 80c for NPS Tier-2 funding
The contributions by the federal government staff (solely) beneath Tier-II of NPS will likely be coated beneath Part 80C for deduction as much as Rs 1.5 lakh for the aim of revenue tax, with a three-year lock-in interval. That is w.e.f April, 2019.
For different NPS subscribers, there are not any tax advantages accessible on NPS investments in Tier-2 accounts.
Beneath Previous Tax Regime : If you’re opting outdated tax regime then you possibly can proceed claiming revenue tax deduction u/s 80C.
New Tax Regime : If you’re going forward with New Tax Regime then you definately can’t declare these contributions u/s 80c.
NPS Maturity Proceeds & Withdrawal Guidelines FY 2023-24
Beneath are the frequent guidelines which can be relevant beneath outdated and new tax regimes relating to NPS Maturity proceeds and withdrawals;
NPS Tier-1 Maturity proceeds on Retirement is Tax-exempt
- After attaining 60 years of age, you might be allowed to withdraw 60% of the entire Corpus quantity and at the least 40% of the gathered wealth within the NPS account must be utilized for buy of annuity/pension plan.
- With efficient from 1st April, 2019, the 60% NPS withdrawal is absolutely tax-exempt.
- In case the entire corpus within the account is lower than Rs. 2 Lakhs as on the Date of Retirement (Authorities sector)/attaining the age of 60 (Non-Authorities sector), the subscriber (aside from Swavalamban subscribers) can avail the choice of full withdrawal. Nonetheless 60% of this withdrawal will likely be tax-exempt and 40% is taxable.
NPS Tier-1 Account & Partial withdrawals
The Tier 1 account is non-withdrawable until the individual reaches the age of 60. Nonetheless, partial withdrawal earlier than that’s allowed in particular instances.
- Within the newest rule change (Finances 2017), PFRDA (Pension Fund Regulatory And Growth Authority) has relaxed the withdrawal norms to the impact that now the subscribers can withdraw as much as 25% of contributions ranging from the third yr of opening of NPS.
- Kindly be aware that such partial withdrawals are tax-exempt. (The NPS partial withdrawals made earlier than 1.04.2017 are taxable.)
The withdrawals from NPS Tier 2 account don’t include any revenue tax profit. The tax assessee is responsible for taxation on any positive factors arising out of investments in NPS Tier-II account and such positive factors are taxable as per the relevant revenue tax slab charges.
Can NRIs declare Tax deductions on NPS AY 2024-25?
Whether or not you might be eligible to assert tax advantages is dependent upon the tax regime you go for for FY 2023-24.
Non-resident Indians (NRIs) are eligible to spend money on the NPS scheme identical to resident Indians. The Rs 50,000 extra tax profit on NPS can be accessible to NRIs. These tax deductions can be found beneath outdated tax regime.
The switch of funds needs to be routed by a non-resident exterior account (NRE) or non-resident strange account (NRO). The one distinction is that the previous is a repatriable resident account whereas the latter is non-repatriable one.
What’s the funding proof to avail the tax profit beneath NPS?
The Subscriber can submit the Transaction Assertion as an funding proof. Alternatively, Subscriber from “All Residents of India” may also obtain the receipt of voluntary contribution made in Tier I account for the required monetary yr from NPS account NSDL log-in. It may be downloaded from the sub menu “Assertion of Voluntary Contribution beneath Nationwide Pension System (NPS)” accessible beneath foremost menu “View” in NPS account log-in.
Kindly be aware that this text is not a suggestion to spend money on NPS Scheme. It is just meant to supply data on NPS Earnings tax advantages FY 2023-24.
Proceed studying:
(Put up first revealed on : 23-Sep-2023)
