Let us look at different sections under which National Pension Scheme provides tax relief. Again, primary purpose of us investing in in this tool is NOT to save taxes. It is to invest for our retirement and increase our human capital beyond our working age.
It is already a given that we all exhaust our Section 80C limit of 1.5L through different term insurances, EPF, ELSS etc. So I won’t talk about obvious tax saving of NPS under this section.
National Pension Scheme also provides benefits under two sections:
- Section CCD(1B) – If you invest in TIER1 of NPS, upto 50,000 INR is deducted from your taxable income.
- Section 80 CCD (2) – If your employer invests in your Pension scheme upto 10% of your basic income is deducted from taxable income.
An illustration of the overall tax savings in case you use both the options. (Assumption is your Basic Salary per year is 10L to & Tax lab is 30%).
Now, your question would be – why is the employer ready to invest in my pension scheme? Please read below under the heading “Tax benefits under the corporate sector”. Do you see, the employer also is getting tax benefits 🙂 (Remember this 10% contribution is NOT additional salary you will get, but is taken from your salary)
If you are confused how much tax saving you will get from NPS, please use the below calculator (its simple formulae in excel).
