How to save tax via NPS by investing Rs 50,000 additionally
Investment in National Pension System (NPS) has been a trending topic of discussion in the recent years from a tax saving perspective for individual taxpayers, considering various changes in the income tax laws. Tax benefits are available in respect of contributions to NPS made by the employer as well as employee/self-employed person to the NPS Tier 1 account.
The tax benefits at the stage of contributions are summarised below:
Employee contributions
Section 80CCD(1) of the Income-tax Act, 1961, provides deduction in respect of contributions made by an individual taxpayer towards NPS. An individual who has deposited any amount in his/her NPS account during the financial year is allowed to claim deduction from his/her gross income limited to 10% of basic salary for salaried individuals and 20% of gross total income for self-employed individuals. This deduction is for contributions made by the individual either directly or through the employer, i.e., as deduction from salary. However, the deduction available under this section is also restricted to the overall limit of Rs 1.5 lakh prescribed under Section 80CCE of the Act.
Section 80CCE specifies the aggregate level of deduction available under sections 80C and 80 CCD(1) of the Income-tax Act. Thus, investment in section 80C basket (EPF, PPF contributions etc.) and section 80CCD (1) (NPS contributions - directly or via employer) in a financial year cannot exceed the specified limit of Rs 1.5 lakh in a financial year.
Currently, Section 80CCE allows an individual to deduct up to Rs1.5 lakh from gross total income (before calculating tax payable) if this Rs 1.5 lakh is invested in specified avenues (including NPS). Certain specified expenditures also qualify for deduction under this Rs 1.5 lakh limit of section 80CCE. Examples of specified expenditures include repayment of principal amount of home loan, children school fees etc.
Source: The Economics Times - https://economictimes.indiatimes.com/wealth/tax/how-to-save-tax-via-nps-by-investing-rs-50000-additionally/articleshow/81209654.cms
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