National Retirement System: Tax Savings Through the National Retirement System: NPS Proof of Investment Documents to Submit to Claim Tax Benefit

Subscribers to the National Pension Scheme (NPS) are eligible for a tax benefit. Note that the tax benefits only apply to investments in a Level I account.

What is NPS?
The National Pension System (NPS) is a voluntary defined contribution retirement savings scheme created to help members make the best choices for their future. The National Pension System (NPS) pools individual savings into a pension fund, which is then invested by PFRDA-regulated professional fund managers in accordance with approved investment guidelines in diversified portfolios comprising stocks, securities corporate debt, government bonds and bills. Depending on the profits received on the investments placed, these contributions would increase and accumulate over time.

Exclusive tax benefit for all NPS u/s 80CCD (1B) subscribers
Only NPS subscribers are eligible for additional deduction for investments up to Rs. 50,000 in NPS (Tier I accounts) under paragraph 80CCD(1B). This is in addition to the Section 80C deduction of Rs. 1.5 lakh allowed in the Income Tax Act 1961.

Also read: How to get tax deduction of up to Rs 9.5 lakh just by investing in NPS

Investment Proof for NPS
The transaction record may be submitted by the subscriber as investment documentation. As an alternative, subscribers of “All Citizens of India” can receive the receipt of their Voluntary Tier 1 Account Contribution for the required financial year by logging into their NPS accounts. To download, log in to your NPS account and use the sub-menu ‘Statement of Voluntary Contributions under the National Pensions System (NPS)’ under the main ‘View’ menu.

In addition to the tax benefits available under the 80CCD, here are the other tax benefits available under the NPS:
Tax advantages for partial withdrawals:
Before turning 60, subscribers can make limited partial withdrawals from their NPS Level I accounts. Budget 2017 states that withdrawals of up to 25% of subscriber contributions are tax-free.
Tax benefit for purchasing an annuity:
The amount invested in the purchase of an annuity is completely tax exempt. However, the annuity income you receive in subsequent years will be taxable.
Tax advantage for capital withdrawals:
After the subscriber turns 60, up to 40% of the total mass withdrawn as a lump sum is exempt from tax.

For example, if your total corpus at age 60 is 10 lakhs, you can consider 40% of that amount, or 4 lakhs, tax free. Thus, you pay no tax at retirement if you use 40% of the NPS corpus for a capital withdrawal and the remaining 60% for the purchase of an annuity. You will only have to pay income tax on the annuity income you receive in subsequent years.

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