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Tax benefits of the National Pension System
The National Pension System or (NPS) currently falls under EET regime where the contribution to the fund is allowed as deduction under Section 80C, the returns are exempt from tax but tax is payable on withdrawal from the scheme. Under the proposed Direct Taxes Code, the NPS will have EEE status of taxation similar to Provident Fund and PPF.
There is another way by which corporate employees can benefit from NPS apart from the tax exemptions stated above. The government gives special tax exemption for contribution towards NPS by employers on behalf of employees under the corporate model. Under this, both employee and employer's contributions are eligible for income tax deduction.
Employee contribution up to 10% of basic plus dearness allowance is eligible for deduction under Section 80CCD subject to a maximum limit of Rs 1 lac. Hence opting for NPS as a part your salary can help you save some additional tax.
Benefits of NPS
1. The biggest advantage of NPS is its low cost structure. With opening, administrative and fund management costs being low, one can expect better returns from the fund over a longer duration as compared to other financial investments.
2. There is a complete transparency in the charge structure and you exactly know how much you are paying for what.
3. Flexibility in the choice of options as well as auto-choice allows one to choose the investment option based on the age and risk appetite.
4. For corporate employees, the employee contribution up to 10% of basic plus DA is deductible under Section 80 CCD upto a maximum of Rs 1 lac.
5. Although the scheme is currently under EET structure of taxation, it won't be long before it is moved to the EEE structure.
Courtesy: Perfios Money Manager
