Income Tax Act allows tax benefits up to Rs 2 lakh on NPS contributions: Know the eligibility

 

Income Tax Act allows tax benefits up to Rs 2 lakh on NPS contributions: Know the eligibility


The NPS was first launched as defined-contribution New Pension Scheme in January 2004 to change the defined-benefit Old Pension Scheme for presidency workers.

The Income Tax Act allows people contributing to Tier-1 Accounts of National Pension System to declare mixed deductions up to Rs 2 lakh underneath totally different sections – up to Rs 1.5 lakh u/s 80CCD(1) and up to Rs 50,000 u/s 80CCD(1B).

While there isn’t any restrict or restrictions on making quantity of voluntary NPS contributions to declare tax benefits up to Rs 50,000 u/s 80CCD(1B), a person has to fulfill some circumstances to declare tax benefits of up to Rs 1.5 lakh u/s 80CCD(1).

Tax Benefits for Salaried Individuals

The NPS was first launched as defined-contribution New Pension Scheme in January 2004 to change the defined-benefit Old Pension Scheme for presidency workers, who joined their providers after December 31, 2003.

So, the NPS has been launched primarily to present pension to authorities workers, the advantage of which was additionally prolonged to others from the yr 2009.

According to Section 80CCD(1) of the Income Tax Act, salaried people with obligatory deductions of NPS contributions from their wage could get tax benefits up to 10 per cent of their month-to-month wage (Basic + DA).

So, for instance, a salaried particular person having month-to-month wage (Basic + DA) of Rs 80,000 could get tax profit up to Rs 8,000 monthly or Rs 96,000 in a yr on obligatory contribution to Tier 1 Account of NPS.

The particular person may additionally get additional tax profit up to Rs 50,000 u/s 80CCD(1B) by making a voluntary contribution to Tier 1 Account of NPS.

Tax Benefits for Non-Salaried Individuals

Non-salaried people – like self-employed, skilled, landlord, housewife, traders having curiosity, dividend revenue and so forth – could contribute up to 20 per cent of their gross annual revenue in Tier-1 Account of NPS to avail tax benefits up to Rs 1.5 lakh u/s 80CCD(1).

Such people may additionally get extra tax profit up to Rs 50,000 u/s 80CCD(1B) by making a voluntary contribution to Tier 1 Account of NPS.

So, for instance, a housewife having gross rental and curiosity revenue of Rs 10 lakh could contribute Rs 2 lakh to Tier-1 Account of NPS and will declare tax advantage of Rs 1.5 u/s 80CCD(1) and extra advantage of Rs 50,000 u/s 80CCD(1B).

But what paperwork do the housewife want to preserve as a proof of gross annual revenue?

“The amount of income declared in the Income Tax Return (ITR) is sufficient,” mentioned CA Karan Batra, Founder and CEO, CharteredClub.com.

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