Saving tax – Looking beyond section 80C

Saving tax – Looking beyond section 80C


National Pension Scheme offers additional deduction of Rs. 50,000/- over & above Rs. 1.50 Lakh under section 80C

The last quarter of the financial year is the time when majority of the taxpayers start exploring tax saving options. This is the time when taxpayers are annoy by section 80C which restricts deduction to Rs. 1.50 Lakh p.a. This is also the best time to know one more powerful tool to save tax – National Pension Scheme (NPS) which offers additional deduction over and above deduction available u/s 80C. Let us know about it.


About National Pension scheme (NPS):
With a view to promote social security measures & offer pension support, NPS benefit is extended by the Government to all the citizens whether private sector employee or a self employed individuals. It’s a voluntary pension scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA) whereinfunds management charge is seal at mere 0.25% p.a. making it the cheapest market link online financial product. section 80C


Tax benefit:

  1. Section 80CCD(1B) in the Income Tax Act-1961 offers an additional deduction of Rs. 50,000/- to the taxpayer for contribution in the NPS. This is over and above the deduction of Rs. 1.50 Lacs available u/s 80C for contribution in LIC/PPF/ NSC etc.Deduction of Rs 50,000/- under 80CCD (1B) is available to all the individuals who has not completed 60 years of age. Deduction is available against investment in Tier-1 account of NPS. section 80C
  2. NPS operates on EET model of taxation wherein investment offers exemption, accrual of income is tax exempt and withdrawals is taxable.

How to Invest:
NPS remains low on popularity, accessibility & subscription as commission offered to the intermediaries & financial consultants on its subscription is almost nil. The taxpayer can voluntarily open account on their own by getting obtaining an application form from Point of Presence-Service Provider (POPSP) or downloading it from the NSDL

One has to submit copies of proof of identity and residence (passport, Aadhar card, ration card, voter ID, driving license, utility bills, etc) along with the application form. Even easy online application can be done if mobile number is linked with the Aadhar card of the applicant by logging & punching the Aadhar number. After feeding the required details & validating it with one time password (OTP), the investor’s details and photo are automatically filled up in the online form.

After uploading the form, the screen would be rout to a payment gateway for the initial contribution in the NPS account. The minimum amount is Rs. 500/-. It can be pay by debit or credit card or Internet banking.  After making the payment, a Permanent Retirement Account Number (PRAN) will be allotted to the subscribers & a welcome kit from the PFRDA containing a PRAN card, IPIN, TPIN and scheme details is also forwarded.

Choosing a pension fund & Asset mix:
As of now, there are 7 pension funds available with following 3 options of investment:
a] Asset Class E – Investments in predominantly equity market instruments. (Not more than 50% is allow for investment in equity).
b] Asset Class C – Investments in fixed income instruments other than Government securities.
c] Asset Class G – Investments in Government securities.



Returns from NPS (as on 05.01.2018):

Different fund manager have offereddiffered returnsPrinciple of High risk high gain proved true for NPS too. The stock market rally has helped equity funds of the NPS generate good returns. For Assets Class E in the last one year wherein average return was in the range of 26.66% to 33.07%. Whereas average return for the last 3 year was in the range of 9.17% to 10.90%. For Assets Class C, average returns for the last year was in the range of 5.03% to 5.74%. Whereas average return for the last 3 year was in the range of 9.55% to 10.29%.  For Asset Class G, rising bond yields have pulled down the returns of gilt funds. As average return in the last year was in the range of 0.58% to 3.25% as against average return of 8.43% to 9.59% for the last 3 years.

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