Tax exemptions for investments under NPS Tier1 Account – Self Contribution

POSTED BY Kunal D ON December 1, 2012 1:04 pm COMMENTS (6)

Hi,

    I wish to know the tax exemptions for investments/premium paid under NPS Tier1 Account by me and under which section of IT Act can I claim the exemption.

I have read conflicting reports of sec 80/C and sec 80CCD [over and above 1 lakh limit but the investment must be done by employer].

Every year I pay the premiums/investment towards my NPS Tier1 account which is inturn used for pension funds.

Help me get a clarity as my employers are unaware of NPS.

Regards,

Kunal

6 replies on this article “Tax exemptions for investments under NPS Tier1 Account – Self Contribution”

  1. ashalanshu says:

    Dear Vinman, you like it or not but Tier 1 is pre condition to open Tier 2 account. You can deposit and withdraw any time in Tier 2. Tier 1 is restricted.

    thanks

    Ashal

  2. Kunal D says:

    Hi,
    Thanks for the responses.

    Yes, the tax filing Ecel file – ITR gave me the answer.

    Individual contribution to NPS is under sec 80/C – Limit stands at 1 lakh p.a – all investments inclusive.

    If Employer contributes to employee for NPS – sec 80 CCD is applicable and it accounts to over the set 1lakh limit in exemptions.

    So all employees need to convince the companies to start contributing to NPS to avail this extra tax exemption limit.

    Regards,
    Kunal

  3. The excel file gives both the sections and the limits. if you play with it long enough you will figure out the taxation % as well.

    1. VinManHBK007 says:

      Hello Mr Free Fincal
      Greetings.
      I am in a fix and unable to decide on what type of the account should i have.

      Considering CONTRIBUTION, Tier 1 seems to be better off since it has more investment opportunity of min Rs.6000/- as compared to Rs.250/- in Tier 2.

      When it comes to WITHDRAWL, Tier 1 is based on annuity scheme (40% in retirement OR 80% on resignation ).

      Are there any more benefits or infact disadvantages (in your opinion) which someone can point out ?
      This will help me to select the right tier.

      Cheers
      VinMan HBK 007

  4. Kunal D says:

    Hi,
    Thanks for the explainations – But I just need to know under which section of IT Act 80C or 80 CCD will my invetsments for NPS fall under and what are the limits?

    Regards,
    Kunal

  5. This is a matter of confusion for most people. Thankfully the excel file for online return filing is very clear about this.

    You can download it from the income tax website. The actual calculations are complicated. this is the easiest and most authoritative source.

    It has two entries where you can separately enter your contribution and your employers contribution. These entries are different from the 80 C for other tax deductions.

    you can enter the numbers relevant for you and click on ‘compute tax’ to see your exact deductions.

    My employer calculated my TDS wrongly and when I used this calculators I realized I had to get a refund of Rs. 25K. Hope you have better luck and pay only the tax you need to pay.

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