NPS BENEFITS YOU MAY NOT KNOW

Tax-efficiency in Tier-I account, cost-efficiency compared to MFs and other instruments, and the benefits of Tier-II accounts make NPS stand out

- JOYDEEP SEN

The National Pension System (NPS) has now been well-accepted by investors as a retirement saving instrument. However, there are certain aspects that are not commonly known, and which you can use to your benefit. These aspects are, tax efficiency, cost efficiency and utilising Tier II account as an investment vehicle.

Tax Efficiency

You can invest up to 10 per cent of your salary (basic + dearness allowance (DA) under section 80CCD(1) of the Income-tax Act, 1961, within the overall ceiling of ₹1.5 lakh under Section 80CCE and a further ₹50,000 in NPS tier I under Section 80 CCD(1B), thus taking your total investible amount to ₹2 lakh. However, Section 80C is only available under the old tax regime (OTR). Now that we are steadily moving towards the new tax regime (NTR), NPS benefits should also be seen from that perspective.

Under NTR, according to the Finance Bill of 2024, employees can avail tax deductions under Section 80CCD(2), up to 14 per cent of the basic salary and DA. Technically, there is a ceiling of contribution of ₹7.5 lakh per year, which includes employers' contribution towards Provident Fund, superannuation and NPS for availing of tax benefits. However, employees in that category will be a handful, given the average salary of our working population. The contribution under Section 80CCD(2) is made by the employer, but the employee gets the tax benefit.