You can have extra tax saving with NPS investment irrespective of whether you are a salaried employee or not.
Tax Benefits on Contribution to NPS
Salaried Employee
Employee’s own contribution up to 10% of salary (basic plus dearness allowance) to NPS are tax deductible under Section 80CCD (1) of the Income Tax Act, subject to a ceiling of Rs.1.50 lacs under section 80CCE.
Any individual other than a salaried employee
Contributions up to 20% of the Gross Income is deductible from the taxable income under section 80CCD (1) of the Income Tax Act, subject to ceiling of Rs. 1.50 lacs under Section 80CCE.
Additional Tax benefit on self-contribution to NPS
For both salaried and self-employed individuals, an additional deduction for investment up to Rs.50,000/- has been provided under section 80CCD(1B) of the Income Tax Act, 1961 which is over and above the ceiling of Rs.1,50,000/-. Therefore, the total deduction that can be claimed for own contribution to NPS can go up to Rs.2 lakh.
Salaried Employee also gets the tax benefit on employer contribution to his/her NPS account. The contribution made by the employer up to 10% of salary (Basic plus Dearness Allowance) can be claimed as a deduction from the taxable income under section 80CCD (2) of the Income Tax Act, 1961. There is no upper cap (in terms of amount) on this tax deduction. This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C and the limit of Rs 50,000 under Section 80CCD(1B).
How does an employer benefit by contributing to NPS for their employees?
The employers can treat the contributions up to 10% of basic plus dearness allowance made to each employee’s NPS account as business expenses and get deduction under section 36(1)(iv)(a) of the Income Tax Act, 1961 without any upper ceiling.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute professional advice. While full efforts have been made to ensure the accuracy of data and numbers, no responsibility is taken for any errors or omissions. Tax implications on insurance, investments and returns from related products may change due to updates in tax laws. Always consult with your financial advisor or insurance expert before making any investment or insurance decisions. The author is not responsible for any financial losses or damages incurred as a result of relying on the information in this blog.
