National Pension System (NPS) is a government-sponsored pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It allows employees (public, private) and self-employed individuals to contribute regularly towards a retirement corpus, which they can withdraw partly aRead more
National Pension System (NPS) is a government-sponsored pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
It allows employees (public, private) and self-employed individuals to contribute regularly towards a retirement corpus, which they can withdraw partly at retirement, while the rest is used to buy a pension (annuity).
Tax Benefits under the Income Tax Act (Post-Budget 2025):
1. Employee’s Contribution:
Section 80CCD(1):
Deduction up to 10% of salary (Basic + DA) for salaried individuals.
For self-employed individuals, deduction up to 20% of gross total income.
This deduction is part of the overall limit of ₹1.5 lakh under Section 80CCE.
Section 80CCD(1B):
Additional deduction of ₹50,000, over and above the ₹1.5 lakh limit under Section 80C.
Available to both salaried and self-employed individuals.
2. Employer’s Contribution:
Section 80CCD(2):
Employer’s contribution up to 10% of salary (Basic + DA) is deductible for the employee.
For Central Government employees, this limit is enhanced to 14%.
This deduction is over and above the limits under Sections 80C and 80CCD(1B).
ax Treatment on Withdrawal:
Lump Sum Withdrawal:
Upon retirement, up to 60% of the accumulated corpus can be withdrawn as a lump sum.
This amount is exempt from tax under Section 10(12A).
Annuity Purchase:
The remaining 40% must be used to purchase an annuity, which provides regular pension income.
Annuity income is taxable in the year of receipt under the head “Income from Other Sources.”
National Pension System (NPS) is a government-sponsored pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It allows employees (public, private) and self-employed individuals to contribute regularly towards a retirement corpus, which they can withdraw partly aRead more
National Pension System (NPS) is a government-sponsored pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
It allows employees (public, private) and self-employed individuals to contribute regularly towards a retirement corpus, which they can withdraw partly at retirement, while the rest is used to buy a pension (annuity).
Tax Benefits under the Income Tax Act (Post-Budget 2025):
1. Employee’s Contribution:
Section 80CCD(1):
Deduction up to 10% of salary (Basic + DA) for salaried individuals.
For self-employed individuals, deduction up to 20% of gross total income.
This deduction is part of the overall limit of ₹1.5 lakh under Section 80CCE.
Section 80CCD(1B):
Additional deduction of ₹50,000, over and above the ₹1.5 lakh limit under Section 80C.
Available to both salaried and self-employed individuals.
2. Employer’s Contribution:
Section 80CCD(2):
Employer’s contribution up to 10% of salary (Basic + DA) is deductible for the employee.
For Central Government employees, this limit is enhanced to 14%.
This deduction is over and above the limits under Sections 80C and 80CCD(1B).
ax Treatment on Withdrawal:
Lump Sum Withdrawal:
Upon retirement, up to 60% of the accumulated corpus can be withdrawn as a lump sum.
This amount is exempt from tax under Section 10(12A).
Annuity Purchase:
The remaining 40% must be used to purchase an annuity, which provides regular pension income.
Annuity income is taxable in the year of receipt under the head “Income from Other Sources.”
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