Is the NPS a good tax saving option; especially considering the additional Rs 50,000 tax savings that one can claim?
Ajit Singh, Delhi
The National Pension Scheme (NPS) is a great retirement savings and investment option. You can claim tax deductions under Section 80CCD(1) which is under the overall Rs 1.5 lakh limit under Section 80C. Moreover, up to 10 per cent of the basic salary put into the NPS by the company on behalf of the employee is deductible without any limit. Additionally, Rs 50,000 contributions can be claimed as tax deduction under Section 80CCD(1b), which takes the total tax deduction that one can claim while contributing to the NPS as Rs 2 lakh in a financial year. However, at the time of retirement, the withdrawal from NPS is currently taxable, with limits. There are several options being worked out to make this taxability on exit of the NPS to be tax efficient, but it will be some time before it gets clear on how this will pan out. For now, the tax deductions on contributions alone should not be the driver to put money in the NPS.
