We
all want to save taxes. We all invest to save taxes. Some invest in
PPF, some in ELSS, some in NSC, some invest in 5-year bank fixed
deposits. But, we all know the maximum investment limit for saving tax
under section 80C is Rs. 1,50,000. So, we all want to save more tax,
over and above 80C. But, there are only a limited number of investment
options which provide tax exemption other than 80C. One of those options
is NPS – National Pension System.
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Introduced
in Budget 2015, your contribution in NPS can save you tax of up to Rs.
15,450, if you are in the highest tax bracket of 30%. NPS provides an
additional deduction of Rs. 50,000 from your taxable income. Interested?
Read on.
So,
let’s start our journey to know more about this tax saving investment
avenue and see whether it truly makes sense to invest in it or it is
better to pay tax and invest in mutual funds to earn higher tax-free
returns.
How to open an NPS account?
Online Account – There are 2 ways to open an NPS account online – one, directly through NPS Trust’s website and two, through an intermediary, like your bank, ICICI Direct, HDFC Securities etc.
Offline Mode – You can also approach a POS (Point of Service) and get this account opened.
Documents Required – PAN card copy, address proof copy, 2 passport-size photographs, investment cheque and Duly Filled Subscriber Registration Form.
Exclusive Tax Benefit u/s 80CCD (1B)
If
you decide to invest in NPS, you can avail a tax exemption of Rs.
50,000 from your taxable income. As the minimum investment requirement
is Rs. 6,000, you can contribute any amount between Rs. 6,000 and Rs.
50,000 to save tax.
Which Account is eligible for Rs. 50,000 Deduction – Tier I or Tier II? – Your
contribution to Tier I account is eligible for up to Rs. 50,000 tax
deduction u/s 80CCD (1B). Tier II account does not entitle you to any
tax deduction.
Minimum/Maximum Annual Contribution – As
per the NPS rules, you need to contribute at least Rs. 6,000 in this
account in a financial year. However, you can do so in multiple
instalments and minimum contribution in a single contribution is Rs.
500.
However,
there is no upper limit on your contribution to NPS. You can contribute
any amount to your NPS account. But, as far as tax benefit is
concerned, you can have only up to Rs. 50,000 in tax deduction.