Finance minister Arun Jaitley, in his budget speech for financial year 2015-16, announced an additional deduction of Rs.50,000 for new pension scheme. As a result, citizens who are in the highest tax bracket (30%) and thereby save Rs.16,000. The new extra deduction announced will take the total deduction allowed in the scheme under section 80C and 80CCD of IT Act, 1961 to Rs. 2 lakh. It is important to note that contribution to the new pension scheme up to Rs.1.5 lakh is not taxed. The new pension scheme has two tiers, namely, tier-I and tier II accounts. While a subscriber cannot withdraw from the tier-I account which is primarily structured for retirement savings, he or she can avail of\u00a0tax benefits<\/b>\u00a0in tier II accounts.<\/p>\nNPS Tier I Account and Tax Benefits<\/h2>\n
Given that a tier-I account under the new pension scheme is primarily aimed at providing post-retirement benefits to the investor and does not allow any withdrawals, it is eligible for various\u00a0tax benefits<\/i>. On the other hand, Tier-II account does not allow any withdrawals and does not offer any tax benefits, you can use\u00a0NPS calculator\u00a0to get an estimate of your scheme amount<\/p>\n The new pension scheme fall into the category of the EET (exempt-exempt-tax) system in that contributions are eligible for deduction, withdrawals are fully taxable while returns are exempt from tax.<\/p>\n Tax deductions offered by NPS are:<\/p>\n NPS is basically a voluntary scheme and the main motive behind the scheme is to provide pension post retirement. You can invest in NPS in many ways, however the main categories are State Government Scheme, Central Government Scheme, and Swavalamban Scheme. You can also invest in NPS through the following seven top banks of the country:<\/p>\n The main differences between\u00a0Tier 1 in NPS accounts\u00a0and\u00a0Tier 2 in NPS accounts\u00a0are given in the following table below:<\/p>\n Finance Minister Arun Jaitley announced an additional income tax deduction of Rs.50,000 towards\u00a0NPS under Section 80CCD<\/strong>. Here are some of the things to remember about the extra deduction:<\/p>\n Tier I \u2013 It is a non-withdrawable account meant for retirement. Any contribution made to this account is eligible for tax benefits.<\/p>\n Tier II \u2013 It is a voluntary withdrawable account that can be opened by only those who have an active Tier I account. The subscriber can also withdraw from the account as per requirement. It works like a bank savings account.<\/p>\nTier 1 Account Offers Various Tax Deductions as Listed Below:<\/h2>\n
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New Pension Scheme and EET System<\/h2>\n
Tax Deductions Offered by NPS:<\/h2>\n
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\n Deductible<\/strong><\/td>\n Maximum limit<\/strong><\/td>\n Section<\/strong><\/td>\n<\/tr>\n \n Mandatory deduction from salary towards retirement<\/td>\n Rs.1.5 lakh<\/td>\n 80CCD (1)<\/td>\n<\/tr>\n \n Voluntary contribution towards NPS by employer<\/td>\n 10% of basic salary<\/td>\n 80CCD (2)<\/td>\n<\/tr>\n \n Voluntary contribution towards NPS made by employer<\/td>\n Rs.50,000<\/td>\n 80CCD (1b)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n 7 Top Banks in India that Help You Invest in NPS:<\/h2>\n
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\n Bank<\/strong><\/td>\n Name of the scheme<\/strong><\/td>\n<\/tr>\n \n HDFC<\/td>\n HDFC Pension Fund<\/td>\n<\/tr>\n \n Kotak<\/td>\n Kotak Pension Fund<\/td>\n<\/tr>\n \n UTI<\/td>\n UTI Pension Fund<\/td>\n<\/tr>\n \n Reliance<\/td>\n Reliance Pension Fund<\/td>\n<\/tr>\n \n LIC<\/td>\n LIC Pension Fund<\/td>\n<\/tr>\n \n SBI<\/td>\n SBI Pension Fund<\/td>\n<\/tr>\n \n ICICI<\/td>\n ICICI Pension Fund<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Difference between NPS Tier 1 and NPS Tier 2 Account:<\/h2>\n
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\n Features<\/strong><\/td>\n Tier 1<\/strong><\/td>\n Tier 2<\/strong><\/td>\n<\/tr>\n \n Is it mandatory for investing in NPS?<\/td>\n Yes<\/td>\n No<\/td>\n<\/tr>\n \n Who is eligible to open an account?<\/td>\n Any resident Indian citizen or NRI<\/td>\n Tier 1 members<\/td>\n<\/tr>\n \n Does it offer any liquidity?<\/td>\n Yes, however it has certain conditions<\/td>\n At any point of time<\/td>\n<\/tr>\n \n Is it mandatory to have a bank account?<\/td>\n No<\/td>\n Yes<\/td>\n<\/tr>\n \n What is the minimum number of contributions in a year?<\/td>\n 1<\/td>\n 1<\/td>\n<\/tr>\n \n How much is the minimum contribution in a year?<\/td>\n Rs.6,000<\/td>\n Rs.1,000 at the time of opening of account<\/td>\n<\/tr>\n \n What is the minimum amount per contribution?<\/td>\n Rs.500<\/td>\n Rs.250<\/td>\n<\/tr>\n \n What is the minimum balance in account to be maintained?<\/td>\n NA<\/td>\n Rs.2,000<\/td>\n<\/tr>\n \n What is the investment style?<\/td>\n Same for both<\/td>\n<\/tr>\n \n What are the Fund Management Charges?<\/td>\n Same for both<\/td>\n<\/tr>\n \n Is it possible to transfer funds from Tier 1 to Tier 2 and vice versa?<\/td>\n No, transfer of funds from Tier 1 to Tier 2 is not possible<\/td>\n Yes, funds can be transferred from Tier 2 to Tier 1<\/td>\n<\/tr>\n \n What are the charges?<\/td>\n Annual maintenance charges \u2013 Paid by the employer, if NPS is opened through employer<\/td>\n Activation and Transaction charges \u2013 To be paid by subscriber<\/td>\n<\/tr>\n \n What are the tax benefits during investment?<\/td>\n \n \n
No tax benefits<\/td>\n<\/tr>\n \n Any taxation on yearly earning?<\/td>\n No taxable<\/td>\n<\/tr>\n \n What are the tax benefits at maturity?<\/td>\n 60% lump sum that is withdrawn at retirement is taxable in that year. 40% corpus under annuity is taxed yearly as per the individual\u2019s IT slab<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n 10 Things to Know About the Additional Tax Deduction of Rs.50,000 by NPS<\/h2>\n
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Issues with NPS Scheme<\/h2>\n