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 turn into probably the most standard funding and tax saving choices in India.
The numbers converse for themselves – The Whole property below administration (AUM) with NPS is now at Rs. 8.82 Lakh crore with Y-o-Y progress of 23.45%. The variety of subscribers below numerous schemes below 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- 12 months (Y-o-Y) improve of twenty-two.88%.
Most of my weblog readers have chosen NPS for 2 important causes – i) for tax saving goal & ii) No different alternative however to speculate, as contribution to NPS has been made necessary for many of the Govt staff.
In case you are investing in NPS Scheme or planning to spend money on NPS, you want to concentrate on all the most recent NPS Revenue Tax advantages which are presently accessible below previous Tax Regime and New Tax Regime (w.e.f FY 2020-21).
On this put up, lets talk about – What are the NPS Revenue Tax advantages for FY 2023-24 or AY 2024-25? Are you able to declare Revenue Tax Deduction on NPS contribution below New Tax Regime? Are there any tax deductions below NPS Tier-2 account? Beneath what sections of the IT act NPS investments could be claimed as tax deductions? What’s the funding proof to avail the tax profit below NPS for FY 2023-24?
Newest NPS Revenue Tax Advantages FY 2023-24 / AY 2024-25 below Previous & New Tax Regimes
Under are the assorted Revenue Tax Sections below which an NPS investor can declare Revenue 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”
Revenue Tax Advantages below NPS Tier-1 Account for AY 2024-25
Tax Deduction below 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 could 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 : In case you are opting previous tax regime then you may proceed claiming revenue tax deduction as listed within the above two factors.
New Tax Regime : In case you are going forward with New Tax Regime then you cannot declare revenue tax advantages u/s 80 CCD(1).
Tax Deduction below 80CCD(1) on NPS funding by Self-employed particular person :
- The self-employed (particular person apart from the salaried class) can contribute as much as 20% of their gross revenue and the identical could be deducted from the taxable revenue below Part 80CCD (1) of the Revenue 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 : In case you are opting previous tax regime then you may proceed claiming revenue tax deduction as listed within the above two factors.
New Tax Regime : In case you are going forward with New Tax Regime then you definitely can not declare revenue tax advantages u/s 80CCD(1).
Revenue Tax Deduction below 80CCD(2) on NPS funding for Non-Central Govt Workers :
- An employer may contributes to NPS scheme.
- The contribution quantity made by the employer could 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 an extra deduction which won’t kind a part of Sec.80C restrict.
- Self-employed people will not be eligible to assert the NPS tax deduction u/s 80CCD(2).
Beneath previous & New Tax Regime : In case you are deciding on New Tax Regime in your Revenue Tax Return then there’s 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 below Sec 80CCD(2) are greater than Rs 7,50,000 a 12 months (together with EPF and Superannuation), then such exceeding contributions are taxable revenue within the arms of the worker. The curiosity earned on over and above Rs 7.5 lakh steadiness can be taxable.
Revenue Tax Deduction below 80CCD(2) on NPS funding for Central Govt Workers :
- The contribution quantity made by the employer (Central Govt on this case) could 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 an extra deduction which won’t kind a part of Sec.80C restrict.
Beneath previous & New Tax Regime : In case you are deciding on New Tax Regime in your Revenue Tax Return then there’s 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 below Sec 80CCD(2) are greater than Rs 7,50,000 a 12 months (together with EPF and Superannuation), then such exceeding contributions are taxable revenue within the arms of the worker. The curiosity earned on over and above Rs 7.5 lakh steadiness can be taxable.
NPS Extra Tax Deduction u.s 80CCD(1b)
A further tax good thing about Rs 50,000 could be claimed u/s 80CCD (1b) by the salaried or self-employed people.
Kindly notice that the Whole Deduction below part 80C, 80CCC and 80CCD(1) collectively can not exceed Rs 1,50,000 for the monetary 12 months 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 : In case you are opting previous tax regime then you may proceed claiming revenue tax deduction of Rs 50,000 u/s 80CCD(1b).
New Tax Regime : In case you are going forward with New Tax Regime then you definitely can not declare further revenue tax deduction of Rs 50,000 u/s 80CCD(1b).
Revenue Tax Advantages below 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 below 80c for NPS Tier-2 funding
The contributions by the federal government staff (solely) below Tier-II of NPS will probably be lined below 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 : In case you are opting previous tax regime then you may proceed claiming revenue tax deduction u/s 80C.
New Tax Regime : In case you are going forward with New Tax Regime then you definitely can not declare these contributions u/s 80c.
NPS Maturity Proceeds & Withdrawal Guidelines FY 2023-24
Under are the frequent guidelines which are relevant below previous 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’re allowed to withdraw 60% of the overall Corpus quantity and no less than 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 overall 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 (apart from Swavalamban subscribers) can avail the choice of full withdrawal. Nonetheless 60% of this withdrawal will probably 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 (Funds 2017), PFRDA (Pension Fund Regulatory And Improvement 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 12 months of opening of NPS.
- Kindly notice 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’re eligible to assert tax advantages is determined by 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 further tax profit on NPS can be accessible to NRIs. These tax deductions can be found below previous tax regime.
The switch of funds must be routed by means of a non-resident exterior account (NRE) or non-resident bizarre 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 below NPS?
The Subscriber can submit the Transaction Assertion as an funding proof. Alternatively, Subscriber from “All Residents of India” may obtain the receipt of voluntary contribution made in Tier I account for the required monetary 12 months from NPS account NSDL log-in. It may be downloaded from the sub menu “Assertion of Voluntary Contribution below Nationwide Pension System (NPS)” accessible below important menu “View” in NPS account log-in.
Kindly notice that this text is not a suggestion to spend money on NPS Scheme. It is just meant to offer info on NPS Revenue tax advantages FY 2023-24.
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(Put up first printed on : 23-Sep-2023)