How To Save Income Tax Using National Pension Scheme (NPS) | SECTION 80CCD(1B) Explained | FinCalC [VIDEO]

While you are preparing to invest in schemes under Section 80C to save Income Tax, the Government of India has made some crucial changes in National Pension Scheme (NPS) to make it more attractive.

Before going to the changes made, let us see how NPS helps us in reducing our Income Tax.

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SECTION 80CCD(1B)

Any individual can invest in National Pension Scheme (NPS), that falls under Section 80CCD(1B) which allows a maximum deduction of Rs.50,000 in the FY 2018-19. This deduction is apart from Rs.1,50,000 that can be claimed as deduction under Section 80C.

By investing Rs.50,000 in NPS you save

Rs.2,600 under 5% Tax Slab

Rs.10,400 under 20% Tax Slab

Rs.15,600 under 30% Tax Slab

This way, you can invest up to Rs.2,00,000 under Section 80C and Section 80CCD(1B) and save up to Rs.62,400 as Income Tax if you fall under 30% Tax Slab.

Changes made in NPS

There are some crucial changes made in NPS by Government of India to make it more attractive.

60% withdrawal completely exempted from Tax

Previously, after reaching the age of 60 years, the NPS subscribers were allowed to withdraw maximum 60% of the corpus. Out of which 20% was taxable.

After recent changes made, the entire 60% withdrawal is non-taxable. Thus making it similar to PPF where principal, interest and maturity amount are all exempted from Income Tax (EEE).

Remaining 40% of the corpus will be used to buy Annuity Plan that will serve for regular pension payouts.

Tier 2 investments are exempted under Section 80C

Another change that has been made and is applicable for Government Employees is that the investments made in Tier 2 of NPS can be claimed as deduction under Section 80C, provided the Investments made are locked in for at least 3 years.

This change is expected to be extended  to private employees as well. This change makes NPS investments similar to investments in ELSS, where both will enjoy deduction under Section 80C (Max Rs.1,50,000).

These are some of the recent changes made in National Pension Scheme (NPS) to make it more attractive.

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