• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Compare Online Insurance Plans in India - MintWise

Term Insurance, Travel Insurance, Student Travel and Medical Insurance, Health Insurance, Cancer Insurance, Critical Illness Insurance

  • Product Quotes
    • Term Insurance
    • Health Insurance
    • Motor Insurance
    • Student Insurance
    • Critical Illness Insurance
    • Personal Accident Insurance
    • Cancer Insurance
    • Resume Application
  • Blog
  • IRDA Compliance
    • License
    • Privacy Policy
    • Terms of Use
    • Disclaimers
    • User Content Policy
    • All from Legal
  • Retirement Plans
  • Save Tax with Insurance

NPS New Pension Scheme – Grab Tax Benefits under Section 80CCD(2)

  • Author

    MintWise

  • Date

    August 5, 2014

NPS_New_Pension_Scheme_Section_80CCD(2)

The New Pension Scheme (NPS scheme) is available to any Indian citizen.  This is relatively a new tax-saving option and very effective, but many of us are not aware of the tax benefits of NPS under Section 80CCD(2). If you have not invested in NPS so far, you are missing out on it!
 
This article explains this benefit and shows you why investing in the NPS is a great decision from the long term perspective.
 

How New Pension Scheme (NPS scheme) tax benefit under Section 80CCD(2) works

If you are salaried, when you sign up for the NPS, your employer contributes 10% of your basic salary* (including Dearness Allowance – DA, if any) towards your National Pension Scheme account.  This is done by re-structuring your income.  Such an amount contributed by your employer is NOT INCLUDED in your income for tax computation, so NO INCOME TAX IS PAYABLE by you on that amount!  Depending on whether you are in 10%, 20% or 30% income tax slab, you straight away save that income tax.
 
That’s not all.  The best part is that there is NO MAXIMUM LIMIT for such a deduction.  So higher your income, higher the deduction, higher the savings.
 
And there’s more to know. This benefit is IN ADDITION TO Sec 80C BENEFIT of up to Rs. 1.50 lakhs per year!
 
We will now demonstrate this through an illustration.
 
Let’s say you are 30 years old, salaried, with Basic Salary* of Rs. 3,00,000 per annum and Gross Income before tax deduction of Rs. 11,00,000 per annum.
 
New Pension Scheme NPS Section 80CCD(2) _1
 
Once you sign up for the NPS Tier 1 account through your employer, your employer will calculate 10% of your Basic and then show it as contribution to NPS. This will also be shown as a deduction in your Form 16 under Section 80CCD(2). Let us see how this affects your taxable income. This is calculated for FY 2014-2015 (AY 2015-2016) but irrespective of that if your tax slab remains the same, the impact is the same.
 
In year 1 of enrolling to NPS, you will save 30% of tax on 10% of your Basic, i.e. 30% of Rs. 30,000 = Rs. 9,000. Refer to the image alongside to understand the impact.
 
New Pension Scheme NPS Section 80CCD(2) _2
Now let’s look at what can be the potential gains over time.
 
If you had not enrolled to the NPS scheme, you would have invested Rs. 30,000 net of tax paid, Rs. 9,000, i.e. Rs. 21,000 only. With you salary increasing @ 8% and investment giving 10% returns, your value will be Rs. 96,17,307 at age 60. Refer to Table below that explains it.
 
If you enrol to the NPS scheme, you would have invested the full Rs. 30,000. With you salary increasing @ 8% and investment giving similar 10% returns, your value will be Rs. 1,37,39,011 at age 60, a cool Rs. 41 lakhs more! 🙂
 
You will also realize that it is proportional to your Basic salary – higher it is, more is your saving. If your Basic Salary is Rs. 5 lakhs p.a., the total savings will be Rs. 69 lakhs, and if your Basic Salary is Rs. 8 lakhs p.a., the total savings is Rs. 1.10 crores! 🙂
 
Even if you consider the fact the NPS amount has to be annuitized by at least 40%, annuity(pension) @ 6% of (40% of Rs. 1,37,39,011) is Rs. 3,29,736, which after 30 years will be far below taxable income limits! And remember that the remaining 60% can be taken back TAX-FREE!
 
Now you will wonder – is 10% return really possible? Of course, it is, and especially in the long run. With 3 different fund options such as Equity, Corporate Bonds and Govt. Bonds, you can not just get good returns but even conserve it.
 
So go for the New Pension Scheme (NPS scheme) with Tax Benefits under Section 80CCD(2) – it is worth it!

 
NPS Returns Best NPS Funds Teaser
 
* 10% of gross salary if you are self-employed.
 

To connect with one of our Trained & Certified Insurance Counselors, please call our Customer Care No. +91 1800 2121 344


Related Posts

  • Retirement Income-till-100
    How I will Earn an Income till I am 100 years old!
  • Retirement Planning – 7 likely reasons you have not done it
  • Section 80DD Deduction Limit for Expenses and Maintenance of Disabled
    Section 80DD Deduction Limit – Expenses & Maintenance of Disabled

34 thoughts on “NPS New Pension Scheme – Grab Tax Benefits under Section 80CCD(2)”

  1. MintWise says:
    March 14, 2017 at 9:26 AM

    NPS is the New Pension Scheme launched under the aegis of the PFRDA without any limit for investing to create a retirement fund. It is open to any individual in the Govt or the Pvt Sector. The EPF is a kind of salary deduction that keeps aside part of your earning today, towards the same objective. But there are caps on what amount you can invest.

    Both offer different tax breaks, different liquidity options and need to be annuitized at the time of retirement.

  2. Raghunandan SK says:
    March 10, 2017 at 5:20 PM

    Dear Seniors,
    What are the differences between NPS & EPF?

  3. MintWise says:
    January 11, 2017 at 10:20 AM

    employee

  4. Kirandeep Maan says:
    January 10, 2017 at 3:26 PM

    Under which section 80ccd or 80ccd1b who will chose these section employee or employer

  5. MintWise says:
    December 27, 2016 at 9:17 PM

    The employer can check eligibility and apply through http://www.npscra.nsdl.co.in

  6. MintWise says:
    December 27, 2016 at 9:14 PM

    NPS is portable. Use your PRAN number and inform your new employer to route your contribution into that.

  7. MintWise says:
    December 27, 2016 at 8:53 PM

    1. 10% of your annual Basic+DA is the max you can invest in a year
    2. 10% is from your own salary (your salary is just restructured, this is not an additional contribution by the employer)
    3. Employer will need to register with NPS for all its employees. Banks are not involved in maintaining NPS accounts but some banks do act as POS (distributor) for NPS accounts.
    4. Redemption before starting annuity – You can redeem up to 20% max and the rest (at least 80%) will need to be used to buy an annuity plan from a pension management company.
    5. Death before starting annuity – The entire fund would be paid to the nominee/legal heir of the subscriber. No annuity needs to be purchased.

  8. MintWise says:
    December 27, 2016 at 8:40 PM

    Manish, there is no additional contribution from the employer in most cases (unless there is a salary revision through increase in your pay funneled into NPS). It is your own salary that is restructured such that a max of 10% of Basic + DA is contributed into the NPS account. This is best done through your employer who (like in the case of PF) will need to register for NPS. Employer also gets the benefit of treating this contribution (through your salary’s new NPS component) as a business expense deduction under section 80CCE.

    Hope this is clear now. Let us know if you still need any further clarification.

  9. Manish Pundir says:
    December 27, 2016 at 2:20 PM

    Dear Team,
    Thanks for your response. But regarding my first query, I am still not clear.

    “Does the employer’s contribution comes from employee’s salary itself (like 10% of basic) thereby reducing the employee’s salary or does employer contributes on its own?

    Is the total contribution (Employee + Employers) Contribution, both being from Employee’s salary?

    Thanks

  10. MintWise says:
    December 27, 2016 at 2:02 PM

    Hi Manish,

    1. It is generally a re-structuring of your existing salary, however it depends completely on the employer.

    2. Yes, your employer needs to ‘sign up’ with NPS to be able to activate Tier 1 for their employees. If you enroll directly, it is not the same as through your employer.

    Hope this addresses your queries.

  11. Manish Pundir says:
    December 27, 2016 at 12:54 PM

    Hi..after reading your article I am bit confused. You mentioned that “If you are salaried, when you sign up for the NPS, your employer contributes 10% of your basic salary* (including Dearness Allowance – DA, if any) towards your National Pension Scheme account. This is done by re-structuring your income.”

    I have below questions:
    1. Does the employer contributes from employee’s salary itself (like 10% of basic) thereby reducing the employee’s salary or does employer contributes on its own? After reading your article I understand that it works as below:
    Employer’s contribution – Contributed from Employee’s Salary itself
    Employee’s Contribution – Ofcourse which employee contributes from salary.

    So total contribution is (Employee + Employers) Contribution, both being from Employee’s salary.

    2. You also mentioned – “Once you sign up for the NPS Tier 1 account through your employer, your employer will calculate 10% of your Basic and then show it as contribution to NPS.”

    “through your employer” – Is this some different process of enrollment?
    Can’t we just enroll from https://enps.nsdl.com/ website, generate the PRAN and share it with employer to get this 80CCD(2) benefit?

    Request you to kindly clarify.

    Regards,
    Manish

  12. MintWise says:
    December 24, 2016 at 12:55 PM

    No, it is the employer’s choice. However you can start you own account separately even if the employer does not participate.

  13. Abhishek Bansal says:
    December 24, 2016 at 11:36 AM

    Hi, I am doctor working in a private hospital. They refused to put 10% of my basic pay into the NPS under section 80CCD(2) saying they don’t have a policy of doing so. Can I do something about this?

  14. MintWise says:
    November 26, 2016 at 8:11 PM

    No, army personnel are excluded.

  15. Nitesh Gupta says:
    November 26, 2016 at 11:25 AM

    Hi
    Can u please help me with the fact that whether Army Personnel are eligible for this deduction U/s 80 CCD (2) or not.

  16. MintWise says:
    November 5, 2016 at 10:57 AM

    Naresh, please read it as a deduction, i.e. declared first and then deducted under the relevant section.

  17. NARESH says:
    November 5, 2016 at 10:43 AM

    You have mentioned that “Such an amount contributed by your employer is NOT INCLUDED in your income for tax computation, so NO INCOME TAX IS PAYABLE by you on that amount!”
    If an employer by restructuring your salary contribute 10% of basic salary in NPS tier I will the amount be first included in taxable salary and then give deduction u/s 80 CCD (2) for contribution made by employer up to 10 % of your basic salary in case of private sector employees.

  18. MintWise says:
    July 16, 2016 at 12:52 PM

    Under Section 80CCD(2) – with employer’s contribution. Maximum amount is lower of (a) amount deposited by your employer in your account or (b) 10% of salary.

  19. Suma Manjunath says:
    July 15, 2016 at 2:46 PM

    Sir,
    I am working in university and claiming tax benefit under Section 80C for 1.5 LAKHS and in Section 80CCD (1B) additional 50,000/- for NPS contribution from my side. For the year the employers contribution for NPS is Rs 92,164/-. Can I claim the tax deduction under 80CCD (2) for maximum amount? Please clarify

  20. MintWise says:
    July 6, 2016 at 4:16 PM

    Maximum amount allowed as deduction under section 80CCD (2) is lower of (a) amount deposited by your employer in your account or (b) 10% of salary.

  21. Gaurang says:
    July 5, 2016 at 7:44 PM

    Hi,

    1. Is there such limit of 1.5L on 80CCD(2)?
    Page#33 on IncomeTax circular http://www.incometaxindia.gov.in/Communications/Circular/Circular20_2015.pdf doesn’t mention that. Please help clarify.

    2. 40% contributed to purchase annuity is not-taxable, rest 60% is taxable. Please refer below and clarify.

    https://india.gov.in/spotlight/national-pension-system-retirement-plan-all?#nps5

  22. MintWise says:
    July 4, 2016 at 10:35 AM

    Yes, employer’s contribution up to 10% of basic plus DA is eligible for deduction under 80CCD(2) over and above the Rs 1.5 lakh limit in Sec 80CCD(1), up to 50k.

  23. MADHURI SHARMA says:
    July 3, 2016 at 7:25 PM

    So Under Section 80C we Can get 1.5 LAKHS and in Section 80CCD (1B) additional 50,000/-. So that makes it 2 lakhs.

    after that If my Employer contributes to My NPS account 80 CCD (2) , Then will I get additional discount excluding the 2lakhs mentioned above?

  24. MintWise says:
    June 23, 2016 at 4:20 PM

    Under Section 80CCD(1) – contribute 10% of Basic+DA, max 1.5 lakhs as part of 80C.
    Under Section 80CCD(1b) – addl. deduction up to Rs. 0.50 lakhs
    Under Section 80CCD(2) – with employer’s contribution, deduction up to Rs. 1.50 lakhs

  25. MintWise says:
    June 23, 2016 at 3:57 PM

    Earlier it was sub-section 1A. Now it is a new sub-section 1B. It is an additional deduction that increases the overall limit from Rs. 1 lakh to Rs. 1.50 lakhs.

    So the total deduction that can be claimed is Rs. 2 lakhs under 80C and 80CCD.

  26. MintWise says:
    March 16, 2016 at 7:07 PM

    Savera, this is a good and common question and there is some confusion around it.

    Corporate can get their employees to subscribe through Tier 1.

    There are three variations of contributions from employer and employee:

    – Equal contributions by employer and employee
    – Unequal contribution by the employer and the employee
    – Contribution from either the employer or the employee

    A Corporate subscriber can also voluntarily contribute in their Tier I through their associated POP. However, contribution in Tier II account can be done through any POP. A corporate subscriber can open both Tier I and Tier II account simultaneously at the time of initial registration or can activate Tier II account subsequently through the associated POP. The investment option for the Tier-II account needs to be exercised by the subscriber, which can be different from Tier-I account.

    However please remember that you total tax benefit will be between both put together. The employer’s Contribution to NPS upto 10% of basic plus DA is allowed deduction under section 80CCD(2) and excluded from the limit of Rs.1.5 lakh.

    Regards.

  27. Savera Singh says:
    March 16, 2016 at 1:37 PM

    Please Let me know If an Employee can specify to his/her employer , as to which Tier(Tier-I or Tier-II) of his NPS account the Employer Contribution to NPS has to go? Or is it mandatorily always Tier-1 ?

  28. MintWise says:
    October 10, 2014 at 10:12 AM

    No, Raju. The employer needs to be involved.

  29. MintWise says:
    October 10, 2014 at 10:12 AM

    No, Raju. The employer needs to be involved.

  30. Raju says:
    September 30, 2014 at 8:07 PM

    Can an individual invest in NPS without involving the employer and avail benefit under section 80CCD

  31. MintWise says:
    August 13, 2014 at 6:44 AM

    Sunil, 13% can indeed be a mix of PF and NPS. But we must point out 2-3 things here. Assuming you have at least 15 years to go for your retirement, you MUST take the benefit of equity to beat inflation. That is the thought in the “Income till 100” article as well. In fact lower your age, higher should be your equity component.

    Now NPS has a maximum share of 50% in Equity and PPF has none. How will your money grow enough to beat inflation?

    Not just that, depending on your salary today and later, your NPS and PPF put together may not reach 13%.

    So Sunil, we suggest a more equity-heavy mix for retirement planning unless you are a risk-averse person and want to play it completely safe.

    On information that you want on NPS, we will be posting new articles on it shortly.

  32. MintWise says:
    August 13, 2014 at 6:44 AM

    Sunil, 13% can indeed be a mix of PF and NPS. But we must point out 2-3 things here. Assuming you have at least 15 years to go for your retirement, you MUST take the benefit of equity to beat inflation. That is the thought in the “Income till 100” article as well. In fact lower your age, higher should be your equity component.

    Now NPS has a maximum share of 50% in Equity and PPF has none. How will your money grow enough to beat inflation?

    Not just that, depending on your salary today and later, your NPS and PPF put together may not reach 13%.

    So Sunil, we suggest a more equity-heavy mix for retirement planning unless you are a risk-averse person and want to play it completely safe.

  33. Sunil says:
    August 11, 2014 at 12:38 AM

    Hello, thanks for yet another interesting article. i have few questions:

    1.In your blog http://www.mintwise.com/earn-income-till-100/, you have explained that we must plan at least 13% of annual income for Retirement. And in the blog
    https://www.mintwise.com/blog/7-reasons-no-retirement-planning/
    you have explained by PF alone is not enough. for retirement planning can this 13% be a mix of NPS and PF i.e., i want to invest little in Retirement due to other financial goals.
    2. What are the different products in the NPS? do they have lock in period? any good blog that can help choose which NPS plan is better?

    Best Regards,
    Sunil

  34. Sunil says:
    August 11, 2014 at 12:38 AM

    Hello, thanks for yet another interesting article. i have few questions:

    1.In your blog http://www.mintwise.com/earn-income-till-100/, you have explained that we must plan at least 13% of annual income for Retirement. And in the blog
    https://www.mintwise.com/blog/7-reasons-no-retirement-planning/
    you have explained by PF alone is not enough. for retirement planning can this 13% be a mix of NPS and PF i.e., i want to invest little in Retirement due to other financial goals.
    2. What are the different products in the NPS? do they have lock in period? any good blog that can help choose which NPS plan is better?

    Best Regards,
    Sunil

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

What are you looking for?

SAVE!!!
Term Insurance
of   1 Crore - 55% Off!
@ just Rs. 5,728 / year*
DATE OF BIRTH
SMOKING / TOBACCO
Yes No
GENDER
Male Female
* for a healthy 25-yr old Non-smoker Male for 25 years.

Recent Posts

  • claim-settlement-ratio-irda-2019-2020Claim Settlement Ratio for Term Insurance by IRDA : 2020-2021
  • Family ProtectionThe Best Term Insurance Plans of 2022
  • claim-settlement-ratio-irda-2019-2020Claim Settlement Ratio for Term Insurance by IRDA : 2019-2020
  • Group Health InsuranceGroup Health Insurance (GHI) made Mandatory for Employers
  • important of term insuranceThe Importance of Term Insurance

Copyright © 2023 · Genesis Sample on Genesis Framework · WordPress · Log in

1800 2121 344

Mon - Sat: 10 AM TO 7 PM

info.mintwise@platinumone.co.in

Email Us

Live chat

Mon - Sat: 10 AM TO 7 PM

+91 86526 45424

WhatsApp 24 x 7

Insurance is the subject matter of the solicitation.

Product and related information like Claim Settlement ratios displayed on www.mintwise.com is based on the information received from the Insurers and/or as published by the IRDAI, the Insurance Regulator.

Corporate Office : PlatinumOne Insurance Broking Private Limited, Unit No. 907, 9th Floor Lodha Supremus II, Plot No. F-4 & F-4/1, Rd No.22, Wagle Estate, Thane (West), Thane 400 604, Maharashtra, India.