How to get tax-benefit of up to Rs 2 lakh through NPS

Section 80C of the Income-Tax Act provides tax-benefits up to 1.5 lakh with multiple investment options. For many investors, this limit is exhausted just from the insurance premium and provident fund contribution. Therefore,  every year before the Union Budget is presented there is a demand from the middle-class to increase this limit. However, until those voices are heard, here are some ways through which you can get an additional tax-benefit of Rs 50,000.

What is NPS? NPS is a voluntary, defined contribution pension system from which you cannot withdraw the full amount at once. A maximum of 60% can be withdrawn at the time of retirement and the rest 40% will be paid out in the form of a monthly pension. One can withdraw 25% of the corpus before the maturity date, but only only three years after the subscription starts. This money can only be withdrawn for medical expenses, buying a house, children’s education & marriage. It has also been proposed that investors with an investment of less than Rs 5 lakh in NPS should be allowed to withdraw the whole amount at the time of maturity. Maximum age to enter the National Pension System has been increased from 65 yrs to 70 years by the  PFRDA.

How can one avail the tax-benefit? By combining section 80CCD(1B), 80CCD(1) & 80CCD(2) one can take a tax-benefit of 2 lakh rupees in NPS. Employee’s & Employer’s investment can be claimed under section 80CCD(1) which is a part of Section 80C. Under Section 80CCD(1) the employee can claim maximum 10%  tax-benefit. If you are self employed then you can claim 20% tax-benefit under this section. Under corporate NPS you can take 10% deduction from basic salary & inflation allowance. This comes under the 1.5 lakh tax-benefit of Section 80C. Under section 80CCD (1B) you can claim additional tax-benefit of 50,000 rupees. This brings the total amount that can be claimed for tax-benefit under NPS to 2,00,000 rupees.