Understanding NPS Tax Benefits Under Section 80CCD(1B): A Comprehensive Guide to Saving on Taxes

The Government of India offers multiple tax-saving options to every citizen of India, intending to encourage savings and investments. One such tax-saving option is the 80CCD(1B) section of the 1961 Income Tax Act, which came into existence in 2015. You might wonder which NPS comes under which section. The 80CCD(1B) section enables an extra deduction of approximately Rs. 50,000 for your contributions towards the National Pension Scheme over and above the deduction of 1.5 lakhs INR available under the 80C Section of the Income Tax Act of 1961. The guide will discuss the National Pension Scheme tax benefits under the 80CCD(1B) section, which NPS comes under which section, and how the National Pension Scheme’s tax-saving benefits will help you save on your tax liability.

What is Section 80CCD(1B)?

The 80CCD section of the Income Tax Act of 1961 deals with the deductions offered to you for contributions towards the National Pension Scheme services. According to the rules and regulations mentioned in the 80CCD section, until 2915, you can claim income tax deductions of approximately one lakh Indian rupees against your contributions towards the National Pension Scheme. In the 2015 budget, the Government of India increased the maximum payable amount towards the National Pension Scheme to R.1.50 lakh p.a. 

A new subsection 1B came into existence, which offered an extra subtraction of approximately Rs.50,000 for your contributions towards the National Pension Scheme. The extra subtraction of Rs.50,000 under the 80CCD(1B) section is accessible more than the benefit of Rs. 1.50 lakhs available as a subtraction in the 80CCD(1) section, increasing the maximum exemption limit to two lakhs Indian rupees under the 80CCD(1) and 80CCD(1B) sections.

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80CCD(1)Section Provisions

The 80CCD(1B) section enables extra deductions of approximately Rs.50,000 for your contributions towards the National Pension Scheme Tier 1 account. The deduction is available whether you are a salaried employee or self-employed. Nonetheless, it is significant to remember that the subtraction is available only for your contribution towards the National Pension Scheme. You can not get access to the deduction under other retirement schemes. It is advisable to know NPS comes under which section.

If you are an individual taxpayer, your contribution towards the National Pension Scheme is eligible for tax deductions under the 80CCD(1B) section. It means that if your employer contributes on your behalf, the contribution will not be eligible for tax subtraction under Section 80CCD(1B). Nonetheless, employer contributions are available under the 80CCD(2) section of the Income Tax Act of 1961.

National Pension Scheme Tax Benefit Under the 80CCD(1B) Section

The tax privileges under the 80CCD(1B) section are important. It is significant to note that the overall tax subtraction under the 80C, 80CCC, and 80CCD(1) can not go beyond 1.5 lakh Indian rupees. Nonetheless, the extra tax subtraction of Rs.50,000 under the 80CCD(1B) section isn’t a part of the total limit. It means that you can claim an overall tax deduction of approximately two lakh Indian rupees, provided that you make the extra contribution of Rs.50,000 towards the National Pension Scheme. Before claiming the tax benefits, it is necessary to know NPS comes under which section.

Eligibility for the National Pension Scheme Tax Benefits Under the 80CCD(1B) Section

To enjoy the National Pension Scheme under the 80CCD(1B) section, the eligibility criteria are as follows:

  • You must be a taxpayer in India.
  • You must contribute towards the National Pension Scheme Tier 1 account.
  • Your employer shouldn’t contribute on your behalf. You should contribute.
  • Under Section 80CCD(1B), the maximum tax deduction is Rs.50,000.
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National Pension Scheme Tax Benefits

The National Pension Scheme offers two kinds of accounts to its subscribers-Tier 1 and Tier 2. The Tier 1 account is a compulsory account, while Tier 2 is voluntary. Your investments in the Tier 1 account are eligible for National Pension Scheme tax deductions and tax benefits under the 80C and 80CCD(1B) section of the 1961 Income Tax Act. Under the 80CCD(1B) section, you can claim National Pension Scheme tax deductions for self-contribution of approximately Rs. 50,000.

For salaried employees, the National Pension Scheme tax rebate can be consequential. The National Pension Scheme tax benefit under the 80CCD(1B) section can save Rs. 15,600 in taxes in one year. The National Pension Scheme overall tax deduction of Rs. 2,00,000 that you can claim under the 80CCD(1) section and under section 80CCD(1B) can save you in the highest income tax bracket of approximately Rs. 62,400 in taxes in one year.

If you self-contribute towards the National Pension Scheme, the maximum limit is Rs.50,000, and the overall tax saved is Rs.15,600 under Section 80CCD(1B). You can claim extra contributions of approximately Rs. 50,000 as National Pension Scheme tax exemptions under Section 80CCD(1B) and above 80C section deductions. Knowing NPS comes under which section is recommended.

Factors You Can Remember to Claim Deductions Under the 80CCD(1B) Section

Some factors you can remember to claim deductions under the 80CCD(1B) section are as follows:

  • The extra deduction of Rs. 50,000 is available for your contributions towards the National Pension Scheme Tier 1 account.
  • You can not claim deductions for Tier 2 accounts under the 80CCD(1) section.
  • The deductions available under the 80CCD(1B) section are to salaried employees and self-employed people.
  • It would be best to show documentary evidence of your transaction related to your contribution towards the National Pension Scheme. 
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Conclusion

If you want to invest in the National Pension Scheme, the 80CCD(1B) section of the Income Tax Act of 1961 is an important tax-saving option. The subtraction of approximately Rs.50.000 is over, and more than the i.5 lakhs INR limit is available under the 80C section of the Income Tax Act of 1961. Investing in the National Pension Scheme aids you in saving your tax liability and provides multiple other privileges like security, adjustability, portability, and creating wealth in the long run. The evaluation of your investment requirements is significant, and consider investing in the National Pension Scheme as a feasible option for post-retirement plans.

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