- Date : 20/07/2023
- Read: 3 mins
Investing in NPS schemes reduces tax liability by offering several tax breaks under new and old income tax regimes.
The National pension system (NPS) can be a reliable investment if you plan for retirement. Investing in NPS can help you earn additional tax benefits. This tax benefit option attracts employers to invest in NPS and build their retirement corpus. The amount you contribute to the NPS corpus from your salary is tax exempted. Corporate NPS tax breaks.
NPS investments offer subscribers various tax benefits under new and old tax regimes.
Corporate employees can claim deductions under 80 CCD (1) by investing up to 10% of their salary in NPS. At the same time, government employees can get up to 14 per cent deductions on NPS investments.
As an employee, employers can help you get additional tax benefits from EPF and NPS investments.
How to get the benefit of additional tax breaks via NPS investment?
There are many ways how you can invest in the NPS scheme. If you invest in a citizen model open to all citizens, you can claim 80C deductions by choosing the old tax regime. And as an employee, if you contribute 10% of your basic salary and dearness allowance to corporate NPS, you can claim a deduction under section 80CCD (1). In comparison, government employees can claim more than a 14% deduction.
Tax breaks under both old and new tax regimes
If you contribute individually, you can claim the 80C deduction, i.e., Rs 1.5 lakh. You can also claim an additional break of Rs 50000 under the section of 80CCD (1B). Employers need to be more aware of corporate NPS benefits. These tax benefits under section 80CCD (2) help you reduce the tax outgo when contributing to the NPS corpus. This tax benefit can be claimed by opting for tax under both old and new regimes.
Is NPS compulsory for government employees?
NPS investment is compulsory for all central government employees who have joined the work after 1st January 2004, other than the armed forces. Many state governments have adopted this compulsion, and many private organisations also qualify for tax benefits on NPS contributions. Employers’ 10 per cent contribution is treated as a business expense and is therefore deducted from the company's profit-and-loss account under section 36 (1) (iv) (a).
It is to be noted that you can withdraw your 60 per cent NPS corpus in a lump sum manner. At the same time, the balance of 40 per cent will remain in your account for purchasing annuities as your post-retirement pension. You can also partially withdraw 25 per cent of your corpus after three years of investment in case of any emergency.
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All the information provided in this article is to help readers make informed decisions about their future finances and not promote any services.