All the tax benefits in National Pension System that you need to know

The National Pension System (NPS) is one investment option you might think about if you want to save for retirement. In essence, NPS is a market-linked deferred pension plan with a number of additional tax advantages.

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One can receive the tax benefit not only when they invest, but also when they take partial withdrawals and when they reach maturity or vesting age. The age at which an annuity, or pension, starts is known as the vesting age. However, the pension received at vesting age is taxable in the individual’s hands according to their tax bracket in the year of receipt.

Section 80 CCD (1): Under Section 80CCD(1) both salaried as well as self-employed may save tax by contributing towards NPS. However, there is a cap on the maximum amount that one may invest for tax benefits and is different for both the categories.

Section 80CCD(1) allows an employee, being an individual employed by the Central Government on or after 01.01.2004 or being an individual employed by any other employer, a deduction of an amount contributed towards NPS subject to a ceiling of Rs 1.50 lakh under Section 80CCE. However, the deduction shall not exceed an amount equal to 10 per cent of the Basic Salary, including Dearness Allowance, but excluding all other allowance and perquisites.