Private Sector vs Government Employees: Taxation guidelines on NPS defined
National Pension System (NPS) is a voluntary pension programme out there to all Indian residents. Subscribers can register an NPS pension account, pay month-to-month contributions all through their employment, and improve the worth of their pensionable age by constructing a large post-retirement corpus and receiving tax benefits. The NPS gives tax advantages underneath Sections 80C and 80CCD, nevertheless, the taxation guidelines underneath the pension plan differ for personal workers and authorities workers.
Sreekanth Nadella, MD and CEO, KFintech mentioned “Any funding in the direction of an NPS account accompanies tax advantages in addition to different perks, akin to a big corpus for post-retirement. But it’s completely different for each worker. If you’re a authorities worker, you’ll be able to positively take pleasure in tax advantages underneath sure sections. However, the tax advantages and reliefs which a personal worker will get are completely different.”
NPS tax advantages for personal and authorities workers
As per Sreekanth Nadella, beneath are the tax advantages out there underneath NPS for personal workers and authorities workers.
1. Tax Benefits for Central Government Employees
Central authorities workers’ tax exemption restrict is ₹1.5 lakh. The lock-in interval is round 3 years. There are three completely different tiers for presidency workers underneath the NPS. A central authorities worker can avail of as much as 3 accounts underneath the NPS – (i) Tier I (necessary), (ii) Tier II (elective) and (iii) Tier III (elective with a lock-in interval and tax advantages underneath Section 80C).
2. Tax Benefits for State Government and Private Employees
Under Section 80C, the higher restrict of tax deductions is ₹1.5 lakh yearly. Fund contributions in the direction of the NPS tier 1 account enable a subscriber to assert ₹50,000 as a tax deduction as effectively.
A personal sector worker may make fund contributions in the direction of NPS tier-II account. They won’t be eligible for tax deductions underneath Section 80C. However, they are going to proceed to stay free from lock-in.
Key factors to notice underneath the current Indian tax regime
(i) Zero revenue tax is charged for revenue as much as ₹2.5 lakh.
(ii) 5% revenue tax is charged for revenue within the vary of ₹2.5 lakh to ₹5 lakh
(iii) 10% revenue tax is charged between earnings of ₹5 lakh to ₹7.5 lakh
(iv) 15% tax for revenue ₹7.5 lakh to ₹10 lakh bracket
(v) 20% for revenue vary ₹10 lakh – ₹12.5 lakh
(vi) 25% for revenue vary ₹12.5 lakh – ₹15 lakh
(vii) 30% for revenue vary above ₹15 lakh.
3. Salary Benefits Available to Government Employees
There are sure exemptions out there to authorities workers. They can declare tax advantages on their NPS contributions in the direction of National Pension Scheme. State authorities workers can take pleasure in tax exemptions as much as ₹1.5 lakh. The exemption for central authorities workers has already been made above.
4. Retirement Benefits Available to Government Employees
Under the brand new pension scheme, retirees can withdraw 60% of the lump sum corpus from their respective NPS accounts. The remaining 40% of the steadiness will probably be used to purchase a life insurance coverage annuity scheme. Retirees can choose any insurance coverage firm.
Retiring authorities workers are eligible for dying cum retirement gratuity. After being employed for at least 5 years, the worker is eligible for this profit. The gratuity quantity is 25% of the fundamental worker wage plus dearness allowance. Maximum payable retirement gratuity is 16x of primary pay. The most restrict is Rs. 10 lakhs.
5. Tax Relief Under NPS Tier 1: Both for Private and Govt Employees
Rs. 1.5 lakh deduction is allowed underneath Section 80CCD (1) Tier I account of the NPS. However, the overall quantity of deduction shouldn’t be past ₹1.5 lakh in a single monetary yr.
Taxpayers may declare an extra unique deduction of ₹50,000 by way of contribution in the direction of NPS tier 1.
Under the brand new revenue tax regime, the unique deduction of ₹50,000 won’t be permitted for workers underneath the previous tax system. However, revenue tax deductions on employer contributions will be availed in any case.
6. NPS Tier II Account Tax Benefits: For Central Govt. Employees Only
The Tier I NPS account is necessary for central authorities workers. The Tier II account is voluntary, and you’ll select it of your individual accord. You can withdraw your surplus funds anytime.
Under Section 80C (2) (XXV), Section 80C tax advantages will be availed by central authorities workers. That is that if they’ve NPS Tier–II contributions. The subscribers ought to full an NPS of a three-year lock-in interval to be eligible for this.
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