How much can I save investing in the NPS?
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Investment in NPS will help you out to save tax when your all-other tax-saving deductions like section 80C, 80D, and 80TTA have been exhausted. Under the National Pension Scheme, one can invest more than Rs 2 lakh in a financial year which will help in bringing down the tax liability.
One can claim deductions under three sections for investing in NPS:
Section 80CCD(1): This comes under the section 80C deduction and is covered by the overall limit of Rs 1.5 lakh in a financial year. The maximum deduction that one could claim is either 10% of basic salary or Rs. 1.5 lakh whichever is lower.
Section 80CCD(1b): Under this section, one could claim an additional deduction for a maximum of RS 50,000, over and above the 80C deduction.
Section 80CCD(2): Under this section, Employer’s contribution to an employee’s Tier I NPS account, where maximum contribution up to 10% of employee’s salary (14% in case of the central government).
Let’s discuss how many deductions can you claim (if you are working in a private sector):
If your annual basic salary is 8 lakhs and your employer contributes Rs. 80,000 to your Tier-I NPS account, you could claim a deduction of 10% of your basic salary, which would be Rs. 80,000. Any amount invested over 10%/14% shall be taxable as perquisites.
A person with a basic monthly salary of Rs 50,000 can claim a total deduction up to Rs 2.6 lakh and if the basic salary is 6.25 lakh or above, the maximum possible deduction will be Rs 9.5 lakh (under all three sections)
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