The Authorities of India rolled out the Nationwide Pension Scheme (NPS) for all of the residents of India approach again on Could 1, 2009 and for company sector from December, 2011. Since then, NPS has grow to be probably the most widespread funding and tax saving choices in India.

The numbers converse for themselves – The Whole belongings underneath administration (AUM) with NPS is now at Rs. 8.82 Lakh crore with Y-o-Y progress of 23.45%. The variety of subscribers underneath numerous schemes underneath the Nationwide Pension System (NPS) rose to 624.81 lakh as at March 4^th 2023 from 508.47 Lakh in March 2022 exhibiting a year- on- yr (Y-o-Y) enhance of twenty-two.88%.

Most of my weblog readers have chosen NPS for 2 foremost causes – i) for tax saving goal & ii) No different selection however to take a position, as contribution to NPS has been made obligatory for a lot of the Govt workers.

In case you are investing in NPS Scheme or planning to spend money on NPS, you want to concentrate on all the newest NPS Earnings Tax advantages which are at the moment obtainable underneath previous Tax Regime and New Tax Regime (w.e.f FY 2020-21).

On this submit, lets focus on – What are the NPS Earnings Tax advantages for FY 2023-24 or AY 2024-25? Are you able to declare Earnings Tax Deduction on NPS contribution underneath New Tax Regime? Are there any tax deductions underneath NPS Tier-2 account? Underneath what sections of the IT act NPS investments might be claimed as tax deductions? What’s the funding proof to avail the tax profit underneath NPS for FY 2023-24?

Newest NPS Earnings Tax Advantages FY 2023-24 / AY 2024-25 underneath Outdated & New Tax Regimes

Under are the assorted Earnings Tax Sections underneath which an NPS investor can declare Earnings Tax Deductions for FY 2023-24 / AY 2024-25 .

• Part 80C
• Part 80CCD (1)
• U/S 80CCD (1b)
• Part 80CCD (2)

“Underneath the brand new tax regime, the primary three deductions usually are not obtainable, however the fourth one continues to be obtainable”

Earnings Tax Advantages underneath NPS Tier-1 Account for AY 2024-25

Tax Deduction underneath 80CCD(1) on NPS funding by Salaried particular person (besides Central Govt workers) :

• An Worker can contribute to Authorities notified Pension Schemes (like Nationwide Pension Scheme – NPS). The contributions might 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).

Outdated Tax Regime : In case you are opting previous tax regime then you may proceed claiming earnings tax deduction as listed within the above two factors.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 earnings tax advantages u/s 80 CCD(1).

Tax Deduction underneath 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 earnings and the identical might be deducted from the taxable earnings underneath Part 80CCD (1) of the Earnings Tax Act, 1961.
• The utmost quantity that may be claimed as tax deduction is Rs 1.5 lakh u/s 80CCD(1).

Underneath Outdated Tax Regime : In case you are opting previous tax regime then you may proceed claiming earnings tax deduction as listed within the above two factors.

New Tax Regime : In case you are going forward with New Tax Regime then you definately can’t declare earnings tax advantages u/s 80CCD(1).

Earnings Tax Deduction underneath 80CCD(2) on NPS funding for Non-Central Govt Staff :

• An employer may also contributes to NPS scheme.
• The contribution quantity made by the employer might be claimed as tax deduction u/s 80CCD(2), topic to the edge restrict of, least of the beneath; Quantity contributed by an employer
• 10% of Primary wage + DA (or)
• Gross Whole earnings
• That is a further deduction which is not going to kind a part of Sec.80C restrict.
• Self-employed people usually are not eligible to assert the NPS tax deduction u/s 80CCD(2).

Underneath previous & New Tax Regime : In case you are deciding on New Tax Regime in your Earnings 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 underneath Sec 80CCD(2) are greater than Rs 7,50,000 a yr (together with EPF and Superannuation), then such exceeding contributions are taxable earnings within the arms of the worker. The curiosity earned on over and above Rs 7.5 lakh stability can also be taxable.

Earnings Tax Deduction underneath 80CCD(2) on NPS funding for Central Govt Staff :

• The contribution quantity made by the employer (Central Govt on this case) might be claimed as tax deduction u/s 80CCD(2), topic to the edge restrict of, least of the beneath;Quantity contributed by an employer
• 14% of Primary wage + DA (or)
• Gross Whole earnings
• The Centre will now contribute 14% of primary wage to Govt workers’ pension corpus, up from 10%. That is w.e.f April 2019.
• That is a further deduction which is not going to kind a part of Sec.80C restrict.

Underneath previous & New Tax Regime : In case you are deciding on New Tax Regime in your Earnings 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 underneath Sec 80CCD(2) are greater than Rs 7,50,000 a yr (together with EPF and Superannuation), then such exceeding contributions are taxable earnings within the arms of the worker. The curiosity earned on over and above Rs 7.5 lakh stability can also be taxable.

NPS Extra Tax Deduction u.s 80CCD(1b)

An extra tax advantage of Rs 50,000 might be claimed u/s 80CCD (1b) by the salaried or self-employed people.

Kindly observe that the Whole Deduction underneath part 80C, 80CCC and 80CCD(1) collectively can’t exceed Rs 1,50,000 for the monetary yr 2020-21. The extra tax deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh restrict.

Underneath Outdated Tax Regime : In case you are opting previous tax regime then you may proceed claiming earnings 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 definately can’t declare further earnings tax deduction of Rs 50,000 u/s 80CCD(1b).

Earnings Tax Advantages underneath 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 underneath 80c for NPS Tier-2 funding

The contributions by the federal government workers (solely) underneath Tier-II of NPS might be lined underneath Part 80C for deduction as much as Rs 1.5 lakh for the aim of earnings 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 obtainable on NPS investments in Tier-2 accounts.

Underneath Outdated Tax Regime : In case you are opting previous tax regime then you may proceed claiming earnings tax deduction u/s 80C.

New Tax Regime : In case you are going forward with New Tax Regime then you definately can’t declare these contributions u/s 80c.

NPS Maturity Proceeds & Withdrawal Guidelines FY 2023-24

Under are the frequent guidelines which are relevant underneath previous and new tax regimes concerning NPS Maturity proceeds and withdrawals;

NPS Tier-1 Maturity proceeds on Retirement is Tax-exempt

• After attaining 60 years of age, you might be allowed to withdraw 60% of the full Corpus quantity and not less than 40% of the accrued 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 totally tax-exempt.
• In case the full 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 might 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 yr of opening of NPS.
• Kindly observe 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 earnings 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 earnings tax slab charges.

Can NRIs declare Tax deductions on NPS AY 2024-25?

Whether or not you might be eligible to assert tax advantages relies on the tax regime you go for for FY 2023-24.

Non-resident Indians (NRIs) are eligible to spend money on the NPS scheme similar to resident Indians. The Rs 50,000 further tax profit on NPS can also be obtainable to NRIs. These tax deductions can be found underneath previous tax regime.

The switch of funds must be routed by way of a non-resident exterior account (NRE) or non-resident atypical 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 underneath NPS?

The Subscriber can submit the Transaction Assertion as an funding proof. Alternatively, Subscriber from “All Residents of India” may also obtain the receipt of voluntary contribution made in Tier I account for the required monetary yr from NPS account NSDL log-in. It may be downloaded from the sub menu “Assertion of Voluntary Contribution underneath Nationwide Pension System (NPS)” obtainable underneath foremost menu “View” in NPS account log-in.

Kindly observe that this text is not a advice to spend money on NPS Scheme. It’s only meant to supply data on NPS Earnings tax advantages FY 2023-24.

Proceed studying:

(Publish first printed on : 23-Sep-2023)