The Income Tax Act makes it possible for people contributing to Tier-1 Accounts of National Pension System to claim combined deductions up to Rs 2 lakh beneath unique sections – up to Rs 1.5 lakh u/s 80CCD(1) and up to Rs 50,000 u/s 80CCD(1B).
While there is no limit or restrictions on generating quantity of voluntary NPS contributions to claim tax rewards up to Rs 50,000 u/s 80CCD(1B), an person has to fulfill some situations to claim tax rewards of up to Rs 1.5 lakh u/s 80CCD(1).
Tax Benefits for Salaried Individuals
The NPS was initial introduced as defined-contribution New Pension Scheme in January 2004 to replace the defined-advantage Old Pension Scheme for government personnel, who joined their solutions soon after December 31, 2003.
So, the NPS has been introduced mainly to deliver pension to government personnel, the advantage of which was also extended to other people from the year 2009.
According to Section 80CCD(1) of the Income Tax Act, salaried people with mandatory deductions of NPS contributions from their salary may possibly get tax rewards up to 10 per cent of their month-to-month salary (Basic + DA).
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So, for instance, a salaried person obtaining month-to-month salary (Basic + DA) of Rs 80,000 may possibly get tax advantage up to Rs 8,000 per month or Rs 96,000 in a year on mandatory contribution to Tier 1 Account of NPS.
The person may possibly also get additional tax advantage up to Rs 50,000 u/s 80CCD(1B) by generating a voluntary contribution to Tier 1 Account of NPS.
Tax Benefits for Non-Salaried Individuals
Non-salaried people – like self-employed, skilled, landlord, housewife, investors obtaining interest, dividend revenue and so forth – may possibly contribute up to 20 per cent of their gross annual revenue in Tier-1 Account of NPS to avail tax rewards up to Rs 1.5 lakh u/s 80CCD(1).
Such people may possibly also get extra tax advantage up to Rs 50,000 u/s 80CCD(1B) by generating a voluntary contribution to Tier 1 Account of NPS.
So, for instance, a housewife obtaining gross rental and interest revenue of Rs 10 lakh may possibly contribute Rs 2 lakh to Tier-1 Account of NPS and may possibly claim tax advantage of Rs 1.5 u/s 80CCD(1) and extra advantage of Rs 50,000 u/s 80CCD(1B).
But what documents do the housewife require to preserve as a proof of gross annual revenue?
“The amount of income declared in the Income Tax Return (ITR) is sufficient,” stated CA Karan Batra, Founder and CEO, CharteredClub.com.