- 15 DEC 2017
NPS New Pension Scheme- Grab Tax Benefits Under Section 80CCD (2)
The New Pension Scheme was introduced in 2009 as a self financing tool and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Under this scheme an account is opened at any Point of presence (POP) which can be a bank or any financial institution. A person can open a TIER I account (Non-withdrawable account) or a TIER II account (withdrawable account) from the age of 18 to 60 years.
The New Pension Scheme has proved to be an effective tool for retirement planning as the scheme allows an individual to deposit funds and after 60 years draw an annuity for lifetime.
One of the best features for which more and more people are considering contributing towards NPS is because of its ability to save tax under section 80CCD(2).
How the NPS can save you Tax under section 80CCD(2)?
You can sign up by opening an account under the New Pension Scheme. If you are a salaried employee, your employer contributes 10% of your basic salary (including Dearness Allowance) towards your NPS account. Such amount, which is contributed towards your NPS account by your employer, is not included in your taxable income. Depending in which slab you pay taxes, 10%, 20% or 30%, you can save huge amount of taxes.
The best reason for which you should definitely consider investing in NPS is that there is no maximum limit of deduction under section 80CCD(2). It means that higher your salary, higher the deduction you can get under the Income Tax Act and can save more for your retirement years.
To make you understand better, let’s assume that your basic salary is 5,00,000 Rs per annum and gross Income before tax is Rs 12,00,000. The tax slab applicable will be 30%.
Case 1: When you have not opened a NPS account
Under this scenario, no deduction is applicable and for the 10% which would have been contributed by the employer from your basic income towards your NPS account (Rs 30,000), you will have to pay Rs 9000 (30% of Rs 30,000) as tax.
Case 2: When you have opened a NPS account
Under this scenario, 10% of 3,00,000 Rs i.e. 30,000 Rs will be contributed towards your NPS account by your employer. In this case your taxable income will be reduced by Rs 30,000 for which you would have paid Rs 9000 (30% of 30,000) as tax. This has allowed you to save Rs 9000 as tax under section 80CCD (2).
The tax deduction under section 80CCD(2) is available only for salaried employees. By reconstructing your salary structure and contributing towards the NPS account by your employer, you can save huge amount of taxes and can save for retirement.
The deduction under section 80CCD (2) can prove highly beneficial for employees who are working and want to plan for retirement in an effective way and increase their overall savings by way of Tax benefits.
- 24 DEC. 2018
Reasons why life insurance makes a perfect Christmas Gift!
You may have gifted accessories, clothes, and even gadgets in the past but how about gifting a promise that secures your loved ones forever? Here’s how a life insurance plan can serve as a perfect gift this Christmasread more
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