NEW PENSION SCHEME & TAX BENEFIT

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NEW PENSION SCHEME & TAX BENEFIT

Query 1]

Please help us know if contribution to National Pension Scheme (NPS) by employer as well as employee (in case of Govt. employee) is both available for deduction or not? Whether any deduction towards long term infrastructure bond is available in the current financial year? [dev.mansoor@gmail.com]

Opinion:

One of the most talk about pension scheme is National Pension Scheme (NPS) which is aim to provide financial security and stability to individuals during the later stages in life. After retirement, people don’t have a regular and steady source of income & so it’s necessary to invest in good retirement plan to ensure sustain their life standards without being dependent and without having to compromise on their standard of life afterwards. Originally introduce in 2004 for government employee, NPS has now be extend from 2009 to cover the private sector employees as well on voluntary basis.

Coming to your query about income tax benefit in respect of contribution to NPS, it may be note that

  1. Employee Contribution is eligible for deduction u/s 80CCD (1) subject to maximum cap of Rs. 1 Lacs (and not Rs. 1.50 Lacs). The deduction is further subject to overall maximum cap of Rs. 1.50 Lacs admissible u/s 80C.
  2. Employer Contribution is also allowed as deduction in the computation of total income of the employee to the extent that it does not exceed ten percent of employee’s salary. Deduction of employer contribution is available over & above the deduction of Rs. 1 Lacs / Rs. 1.50 Lacs as mentioned in (1) above.

NPS is Tax on Exit:
NPS is operated on EET model i.e., Exempt-Exempt & Tax. Contribution to the NPS is exempt, regular accrual of income in the account is also exempt but withdrawals is taxable. Whatever money is received, whether in lump-sum or as a regular pension, has to be added to income and taxed accordingly.

Long term Infrastructure Bonds:
Deduction of Rs. 20k towards investment in the long term infrastructure fund was available U/s 80CCF for the A.Y. 2011-12 & 2012-13 only. The deduction was discontinued from the AY 2013-14. Hope, with the necessity of fund for infra sectors, the new government may reintroduce section 80CCF in the coming union budget.

 

Query 2]

I have read in earlier issues of Tax Talk about ways of saving long term capital gain tax. As mentioned, I have deposited the amount in the capital gain deposit  scheme (CGDAS) with a bank in Deposit Account –A which is like a saving bank. I have booked a flat now and would be complying with the time period of investment u/s 54 for saving tax. Now, I want to withdraw the amount. I would be thankful if you can kindly guide me about the mode & precaution to withdraw the amount from CGDAS. [J.N.Gavai, Amravati]

Opinion:

The amount deposite in the Capital Gains Deposit  Scheme (CGDAS) can be withdrawl by making an application. In the appropriate form (Form C, in your case). The amount so withdrawn needs to be utilize within 60 days from the date of such withdrawal and only for the specific purpose for which such withdrawal is make.

If for any reason, the amount could not be utilize for intend purpose, it has to be re-deposit immediately. After the first withdrawal, for subsequent withdrawal, an application is require to be make mentioning details of the manner/purpose in which the previous withdrawal was utilize. Most banks do not issue any cheque books to the Capital Gain Account Scheme holders as the withdrawal is to be effect by filling up the specific form only.

All amounts withdrawn in excess of Rs. 25,000/- are disburs by the bank through Demand Drafts directly in the name of the vendor or builder. The important question, how to close the CGD account. For this, you need to approach your assessing officer for approval of account closure. On the closure of the account or after the lapse of three years, whichever is earlier. The entire unutilize funds lying in the account are liable to be tax under capital gains.

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