NPS Tax Benefits 2019- Under Sections 80 CCD(1), 80 CCD(2) and 80 CCD(1B).
NPS tax benefits changed in Budget 2019. Do you know about the changes done to 80 CCD(1), 80 CCD(2) and 80 CCD(1B) sections?
I already wrote a post about EEE exemption of NPS maturity at retirement. Click here to read.
But I felt a separate article needed to explain NPS Tax benefits under Budget 2019.
Read article about what is NPS? How to join in it?. Click here to read.
Earlier NPS has EET tax status. That means when you invest tax exempted, on the return of NPS also tax exemption, But when you withdraw 60% NPS at the time of retirement 40% is tax free and 20% corpus withdrawn is taxable.
But now, the total 60% corpus withdrawn at the time retirement is tax free.
Hence we can call it as EEE exemption.
However, Pension receivable from 40% corpus invested in an annuity is taxable based on the income slab of the person.
NPS tax benefit while investing for retirement…
There are two types of accounts available under NPS.
They are Tier 1 and Tier 2 accounts.
The two accounts have different tax benefits.
But all the tax benefits not available to all subscribers.
Tyre 2 account tax benefits available to Government Employees only.
Refer article about difference between Tier 1 and Tier 2 accounts.
Tier 1 tax benefits under the section for NPS account…
Section 80 CCD(1) Benefits…
- The maximum tax benefit allowed is Rs.1,50,000 including 80 C limit.
- 20% of an Individual’s income (earlier it was 10%) or an Employee’s 10%(Basic + DA) is allowed as a deduction.
- Please remember this section is part of 80 C
Section 80 CCD(2) tax benefits…
People misunderstood this section thinking there is no upper limit under this section.
But the least of the following has tax deduction.
a) Amount contributed by an Employer
b) 14% of ( Basic + DA) for Central Government Employees earlier it was 10%.
c) Gross Total Income.
This addition deduction and it is not part of section 80 C.
Self Employed will not get tax deduction under this section.
Section 80 CCD(1B) Tax benefit for NPS account…
- Additional Rs.50,000 can be availed as tax benefit. This benefit given in budget 2015.
- This tax deduction can be availed from F.Y 2015-2016.
- This deduction can be availed by both Self Employed and Employees.
- This deduction is over and above Section 80 CCD(1).
Tier 2 Account TAx benefits for NPS…
Prior to budget 2019, there is no tax benefit for Tier 2 account.
But Now if the Central Government Employee contributes to Teir 2 account of NPS, then he will get tax deduction under section 80 C.
However, total deduction under 80 C should not cross 1.5 lakh in a Financial year for such deduction.
In addition, this Tier 2 account contribution will be locked for there years(Just like an ELSS mutual fund)
What is the maximum tax benefit under NPS investment…
Self Employed Tax Benefits…
The maximum tax benefits can be availed is Rs.2,00,000 ( including Rs.1,50,000 under section 80 CCD(1) and Rs.50,000 under section 80 CCD(1B).
Where section 80 CCD(1) is part of section 80 C.
But remember there are other options also available for tax deduction under 80 C like PPF, Life Insurance
Do not dream that NPS alone giving 2 lakh tax benefit apart from 80 C tax benefit.
Salaries TAx benefits…
Salaried tax deduction under section 80 CCD(1) and section 80 CCD(1B) is Rs.2,00,000.
In addition, salaried can get tax deduction under section 80 CCD(2) I have already explained above.
The important and major benefit to central Government Employees is earlier Government used to contribute 10% of Basic + DA But, now it is 14% of Basic + DA.
One more tax deduction for Central Government Employees is that the contribution towards Tier 2 account is eligible for tax deduction under section 80 C.
However, total tax benefit under section 80 C is up to Rs.1,50,000 only including other savings like life insurance premium, PPF, ELSS of mutual funds etc.
Tax benefits for NPS withdrawal at retirement…
- You can withdraw up to 60% of the corpus accumulated till retirement.
- you have to buy an annuity from any life insurance company to get pension. However, this pension is taxable based on the income tax slab of your’s.
NPS Taxation- If withdrawn prior to retirement…
- you are allowed to withdraw 20% tax-free accumulated corpus before retirement.
- you have to buy an annuity from a Life Insurance Insurance Company to get the pension.
There is no clarity on the taxation of the 20% corpus withdrawn before retirement and annuity bought with 80% of the NPS corpus before retirement.
NPS taxation – When Subscriber dies…
Salaried…
Nominee can withdraw only 20% of the corpus.
The Nominee has to purchase an annuity with balance 80% of the corpus to get the pension.
However, Nominee can withdraw 100% of the corpus accumulated corpus if it is less than or equal to Rs.2,00,000.
Others…
Nominee can either of the two choices 1) To withdraw 100% of the corpus 2) To buy an annuity.
Lump sum withdrawal from NPS is tax free.
However, the pension received from annuity bought with NPS corpus is taxable in the hands of Nominee based on the income tax slab of the Nominee.
