NPS : Frequently Asked Questions - Part 1

Many persons have doubts regarding NPS tax benefits. So, here i have taken few general questions which may help you to clear your doubts. If still you are unclear, than feel free to comment and ask.

My salary (Basic + DA) is Rs 4 lakhs, so what are the tax benefits I can claim under NPS?

The total tax benefit if you invest in NPS  is capped at Rs 1.3 lakh per annum. Check the table below

	Section	Maximum allowed deduction	Remarks
	80 CCD(1)	40000	10% of salary, employee contribution
	80 CCD(2)	40000	10% of salary, employer contribution
	80 CCD(1B)	50000	Voluntary contribution if done
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Amit is a government employee and his employer deducts Rs 62,000 per annum (which is 10% of basic + DA) from salary as employee’s contribution in NPS. It also deposits Rs 62,000 per annum as employer’s contribution in NPS. How and under which section should he claim tax benefit on NPS?

• Employer’s contribution in NPS would be eligible for tax deduction u/s 80CCD(2).
     
• The employee has a choice as to which section ,80CCD(1) or 80CCD(1B), he wants to show his contribution.  Ideally he should show Rs 50,000 investment in NPS u/s 80CCD(1B). The tax deduction on rest Rs 12,000 can be claimed u/s 80CCD(1). The section 80CCD(1) along with Section 80C has investment limit eligible for tax deduction as Rs 1.5 lakhs. So he should make additional investment of Rs 1,38,000 in Section 80C to save maximum tax. In all he can save Rs 2 lakhs tax u/s 80C and 80CCD(1B).
    

As a central government employee, my investment in tier I is fixed. Let us say it is Rs. 80,000 in a year. My other savings for tax exemption purpose in NSC, PPF etc are Rs. 1 lakh. That means the total saving is Rs. 1.8 lakh. Can I split my 80 thousand saving in NPS as 50 thousand (u/s 80C) and rest 30 thousand (u/s 80CCD) so as to get advantage of 30 thousand tax exemption under new rule under section 80CCD??

Yes, you can split it and claim the benefit of Rs. 1.8 lakh. My assumption is that NPS contribution of Rs. 80,000 doesn't include your employer's share. This is how you can do.

• You can claim Rs. 1.5 lakh deduction u/s 80C as follows
• PFF, NSC etc = Rs. 1 lakh (Section 80C)
• NPS =  Rs. 50 thousand (Section 80CCD(1))
    
• You can claim the remaining Rs. 30,000 under Section 80CCD(1B)
  
     

I have invested Rs 90,000 in PPF & LIC, NPS employee contribution is 90,000 and same for Employer contribution. How can I take maximum tax benefit?

The total tax benefit you can take is Rs. 2,70,000. Below is the break up.

	Section	Maximum allowed deduction	Remarks
	80 C	90000	PPF, LIC, NSC, Tax Saving FD etc
	80 CCD(1)	40000	10% of salary, employee contribution
	80 CCD(2)	90000	10% of salary, employer contribution
	80 CCD(1B)	50000	Voluntary contribution
	Total Tax Benefit	270000
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Section 80CCD(2) of income tax describes about NPS contribution made by the employer and me as an employee can claim tax exemption under this section.

But as this employer contribution is not taken as part of salary can I claim this exemption directly under section 80CCD(2) or I should add the employer contribution to gross salary and then claim the exemption under section 80CCD(2). Please clarify should i add employer contribution to gross salary and then claim this exemption.?

Ideally this contribution is part of your CTC (Cost to company) and should be included in the gross salary section just like EPF, HRA etc. In case it is not part of your gross salary than you should add it. Income chargeable under the head "SALARIES" (net salary) is calculated after deducting HRA form gross salary which is the actual figure need to taken for taxation purpose. From this net salary deductions are allowed under chapter VI-A, which includes

• Income/Loss from house property.
• Deductions under Section 80C and others including NPS

I have invested Rs 1.5 lakh in PPF and Rs 62,000 in NPS. Am I still entitled to the employer’s contribution of NPS (62,000) under Section 80CCD(2)?

Yes, you can claim deduction if the contribution to the NPS has been made by the employer. This deduction can be claimed over and above Sec 80C and employee’s contribution to NPS. The deduction will depend on your basic salary. If your basic salary, excluding all allowances and perquisites except dearness allowance, is upwards of Rs 6.2 lakh, you can claim deduction of Rs 62,000 under Sec 80CCD(2). Else, the deduction will be capped at 10%.

After the above deductions from net salary, what we get is the taxable amount. So, you can simply take the figure "Income chargeable under head Salaries" from Form-16 for taxation purpose.

Read Also: Frequently Asked Questions - Part 2