11 March, 2025
Synopsis:
You can claim tax benefits for NPS Tier I Accounts under sections 80CCD (1) and (1B) of the Income-Tax Act.
Investments in NPS Tier II Accounts do not come with tax benefits.
You can learn more about NPS tax advantages and grow your wealth with HDFC Bank’s NPS offerings.
If you’re keen on finding out how to claim the National Pension Scheme (NPS) tax benefits on your Tier I and Tier II accounts, this article is for you. NPS is a great tax-saving and long-term investment tool. One of the prime advantages of retirement planning through NPS is that along with saving for your post-retirement years; you also get to enjoy tax benefits. Let’s take a close look at the NPS tax saving advantages.
NPS is a government-sponsored scheme with the dual benefits of retirement planning and tax saving. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA). The primary objective of the NPS scheme is to aid investors in building a sizeable retirement corpus. Any citizen of India between 18 and 60 years of age can invest in NPS.
There are two types of NPS accounts - Tier I and Tier II. While NPS Tier I is well-suited for retirement planning, Tier II NPS accounts act as a voluntary savings account. Tier I NPS investment is a long-term one and the amount cannot be withdrawn until retirement. This is not the case with Tier II NPS accounts.
Now that we have seen the difference between Tier I and Tier II NPS accounts, it’s time to explore the different NPS scheme tax benefits. Under Section 80CCD (1) of the Income-Tax Act, NPS offers a tax exemption of up to ₹1.5 Lakh. In case a company provides an NPS facility, the employer’s contribution to NPS offers a tax rebate of up to 10% of the salary (basic plus DA) under Section 80CCD(2).
For salaried individuals who have claimed tax exemption of ₹1.5 Lakh under Section 80C, NPS offers scope for additional tax savings. An additional deduction for investment up to ₹50,000 in NPS (Tier I Account) is available to NPS subscribers exclusively under subsection 80CCD (1B). This is over and above the ₹1.5 Lakh deduction available under Section 80C of the Income Tax Act 1961.
However, this additional deduction under Section 80CCD (1B) applies only to Tier I NPS account holders.
The NPS Tier II Account is a voluntary, flexible option that allows you to withdraw and contribute funds anytime, without any restrictions. However, contributions to the Tier II Account do not qualify for tax benefits under NPS.
When it comes to NPS tax benefits, another point to remember is that the deduction under Section 80CCD (1) is available to both salaried individuals and non-salaried individuals. However, for salaried professionals, the maximum deduction allowed under Section 80CCD (1) is 10% of the salary for that year. On the other hand, for non-salaried individuals, it is 20% of their total gross income for that year.
With this information of the NPS Income Tax benefit in your kitty, we are sure you will be able to grow your wealth and save on tax at the same time!
Read more on the benefits of the NPS Scheme here.
Click here to open your NPS Account now.
Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.