Future Generali

Can non-government employees avail the tax benefits of NPS?

What is the National Pension Scheme? 
The NPS is a government-sponsored pension scheme launched by the Pension Fund Regulatory and Development Authority (PFRDA). 

Is it only for government employees?
NPS was earlier launched only for government employees. But now, any employee or self-employed person can open an account and avail NPS account tax benefits and other benefits. 

What is NPS Corporate Sector Model?
In 2011, the PFRDA launched a different model for corporate employees, called the NPS Corporate Sector Model. 

What are the features of NPS Corporate Sector Model?
  • It is very low cost. In fact, the cost is one of the lowest for pension schemes in the world. 
  • It can be transferred from one job to another. 
  • The employee has the flexibility to select the Fund Manager, Point Of Presence, annuity scheme, investment option, and annuity service provider. 
  • All transactions, fund status, and NAV can be easily tracked online. 

Can employees avail tax benefits under NPS scheme for the private sector?
Yes, private sector employees can also avail tax benefits under NPS Corporate Sector Model. 

What are the NPS account tax benefits for employee contribution?
  • Investment of not more than 10% of (basic salary+DA) is tax-deductible under section 80CCD(1), upto a limit of ₹1.5 lakh. 
  • Over and above this limit of ₹1.5 lakh, an additional deduction of ₹50 thousand is deductible under Section 80CCD(1B). 

What are the NPS account tax benefits for the employer’s contribution?
Under Section 80CCD(2) of the Income Tax Act, an investment amount of not more than 10% of (basic salary+DA) is tax-deductible. In this case, there is no maximum limit for the amount. 

Is the withdrawal amount of NPS scheme for private sector tax-deductible?
Out of the maximum 60%, upto 40% of the withdrawn corpus is tax-deductible. 

Is the amount invested in annuity tax-deductible?
No, the pension earned from annuity investment is treated as an income and is taxed accordingly. 

Is pension received tax-deductible?
No, the pension earned from annuity investment is treated as an income and is taxed accordingly. 

What is NPS Tier II account?
NPS Tier II is not a retirement account. It offers voluntary savings and any-time withdrawal option. Employee can also avail fund management service at low costs. 

Are there tax benefits for NPS Tier II account?
Under Section 80C, government employees are eligible for tax benefits if they keep the investment for 3 years. Private sector employees and self-employed persons do not get any tax benefits. 

Disclaimer and Links