Additional deduction of Rs. 50,000/- through National Pension Scheme U/s 80CCD (IB) of Income Tax Act

                  As we all aware Deductions are available U/s 80C towards contribution to Provident/Pension Funds, Life Insurance Premiums, Mutual Funds, Tax Saving Fixed Deposits, Children Education Expenses, Housing Loan Principal repayment, etc to save income tax.  However the aggregate deduction, for the said items is limited to Rs.1,50,000/- only.

                 

                 Section 80CCD of Income Tax Act, 1961 has been in amended in the Finance Bill, 2015 so as to provide following benefit under sub section (IB): 

“ All Individual assessees shall be allowed a deduction in computation of their total income,  if they deposit, in their account, under a pension scheme notified by the Central Government upto fifty thousand rupees” 

Our views are detailed under:

1.                          National Pension System (NPS) is an investment cum pension scheme notified by Government of India, to provide old age security and pension to all citizens of India. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA).  It is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to each Subscriber upon joining NPS.

2.                     NPS returns are market linked. Depending on the returns generated under Equity, Corporate Bonds and Government Securities funds, the Corpus will be created.

3.                           This is an additional deduction in respect of contribution made by an individual and maximum deduction is Rs.50,000/- .  Accordingly, an individual with highest tax bracket i.e., 30% , can save tax upto Rs.15,450/-

4.                            The age of Individual should be between 18 and 60 Years.

5.                   The NPS Schemes are managed by Banks/Institutions like SBI., Bank of Baroda, HDFC., ICICI., Kotak, etc.

6.                     The Sum received on account of closure or his opting out of pension scheme or pension received from annuity plan, the whole of such amount shall be deemed to be income of the assessee or his nominee in the year the sum so received and taxes are to be paid accordingly.

7.                            The  amount received by the Nominee, on the death of the Assessee is not taxable.

8.                      Before making entry into the Scheme, it is advised to study scheme thoroughly as they are many procedural aspects, investment options, exit options, charges, etc.