Why ULIP mis-selling has become rampant ?
Why is there so much mis-selling of ULIP? How to avoid this mis-selling? Who should take ULIP?
National Pension System (NPS) is the best market-linked retirement instrument available to citizens. If one can invest small amounts for long enough, one is bound to get good returns from the very first day of one’s retirement. An individual can utilise this instrument irrespective of whether he works for any government, Central or state, or the private sector. Even the self-employed can benefit from it. Besides a neat corpus for retirement, NPS also offers tax benefits. Recently the government extended the deadline of filing income tax returns for the fiscal year 2020-21 to December 31, 2021. If you have an NPS account and are yet to file ITR for FY21, you should know are the tax benefits that you can get from it. Money9 offers a brief guide.
Section 80CCD (1)
Contributions made by an individual taxpayer towards the NPS Tier-I account are eligible for tax benefit under section 80CCD (1). Subscribers who contribute any amount to their NPS account throughout the financial year are eligible for a deduction from their total salary of up to 10% of their basic pay for salaried individuals and 20% of their total income for non-salaried individuals.
Deductions from salary income are applicable under NPS. The deduction allowed under this provision is limited to the total maximum of Rs 1.5 lakh set by section 80CCE of the Act.
Section 80CCD (1B)
Section 80CCD(1B) enables a deduction of Rs 50,000 in addition to the Rs 1.5 lakh allowed by Section 80CCE. In a financial year, a taxpayer can seek a total of Rs 50,000 as tax breaks under section 80CCD (1B). This tax advantage of Rs 50,000 is in addition to the tax benefits provided under sections 80CCD (1) and 80CCD (2).
As a result, if a subscriber has over the Rs 1.5 lakh limit under section 80CCE apart from NPS, self- or employer-made contributions to NPS can be used to claim an additional deduction of Rs 50,000 under section 80CCD (1B).
Section 80CCD (2)
Individuals can claim a tax advantage under 80CCD (2) against the contributions made by the employer on their behalf. The contributions made by the employer are deductible under section 80CCD (2) of the Income Tax Act, up to a maximum of 10% of basic pay in a year.
This deduction is in addition to the deduction for employee contributions and it is not subject to the total maximum of Rs 1.5 lakh set by section 80CCE and 80CCD (1B).
Additional benefits
A subscriber can withdraw funds from their NPS Tier-I account partially before reaching the age of 60 for emergency use.
The amount withdrawn is tax-free provided it is up to 25% of the contribution made by the subscriber. The amount contributed for purchasing an annuity is also tax-free. The annuity income you receive is subject to tax in the subsequent years according to your slab.
Suppose you have Rs 30 lakh corpus in your NPS account, then you will be eligible to withdraw 40% or Rs 12 lakh as lump sum as tax free, and rest Rs 18 lakh would be used to buy annuity that is tax free. But when NPS pays you a monthly pension the amount is fully taxable under your existing tax slab, if there is any.