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How To Save Taxes By Investing In NPS?

Published On Dec 08, 2021 9:00 AM By InsuranceDekho

The Central Government's National Pension Scheme is a social-security programme. Except for members of the military services, this pension programme is available to employees in the public, private, and even unorganised sectors. The programme encourages employees to put money into a pension account at regular periods throughout their careers. Subscribers can withdraw a portion of the corpus after they have retired. The remaining money will be paid out to you as a monthly pension if you have an NPS account.

Previously, only Central Government employees were covered by the NPS scheme. The PFRDA has now made it available on a voluntary basis to all Indian people.

Anyone who works in the private sector and needs a regular pension after retirement would benefit greatly from the NPS programme. With tax incentives under Section 80C and Section 80CCD, the programme is portable across occupations and regions.

You can deduct up to Rs.1.5 lakh for both your and your employer's contributions to the NPS. – Self-contribution, which is a part of Section 80C, is covered by 80CCD(1).

The maximum deduction allowed under section 80CCD(1) is 10% of the salary, but no more than that. This ceiling is set at 20% of gross income for self-employed taxpayers.

The employer's NPS payment is covered under Section 80CCD(2), which is not included in Section 80C. Self-employed taxpayers are not eligible for this benefit.

Benefits From The National Pension System (NPS)

The following are the tax benefits of NPS:

  • On the employee's and employer's contribution to the National Pension System, a tax exemption of Rs.1.5 lakh can be claimed (NPS). Sections 80CCD(1), 80CCD(2), and 80CCD(1B) of the Income Tax Act allow you to claim tax benefits.
  • Self-contribution is covered by Section 80CCD(1). Salaried employees can deduct up to 10% of their salary, whereas self-employed people can deduct up to 20% of their gross income.
  • The employer's contribution to NPS is covered under Section 80CCD(2), which is also part of Section 80C. Individuals who are self-employed are not eligible for this benefit. The employer's NPS contribution or 10% of a person's basic income + Dearness Allowance is the maximum amount a person can deduct (DA).
  • Individuals can claim an additional Rs.50,000 as an NPS tax benefit under Section 80CCD(1B) for any other self-contributions.
  • Individuals can claim up to Rs.2 lakh in tax benefits under the NPS.

Tax Deductions Under NPS Are As Follows:

  • Additional NPS Tax Deduction Finance Minister Nirmala Sitharaman announced an additional Rs.50,000 income tax deduction for NPS under Section 80CCD. Here are a few points to keep in mind concerning the extra deduction:
  • Individuals who pay the highest tax rate of 30% can save an additional Rs.16,000 in taxes thanks to the enhanced deduction of Rs.50,000 on NPS. Employees who pay 20% tax save over Rs.10,000, while those who pay 10% tax save Rs.5,000.
  • Employees will be able to opt out of EPF and invest in NPS for retirement, according to the Finance Minister.
  • Tax on withdrawal: The tax savings on NPS withdrawals have not been extended. As a result, contributions to NPS and interest generated up to Rs.1.5 lakh are tax-free, but the amount withdrawn is taxable.


Saving taxes is one of the reasons why people invest. There are numerous tax-saving options available that allow you to save money while also assisting you in achieving your life goals, such as retirement savings. The National Pension System (NPS) is one such investing option. Let's look at how the National Pension System (NPS) can help you save money on your taxes.

The National Pension System, also known as the NPS system, is a government-backed voluntary investing programme. It's the greatest plan for anyone looking to start saving for their retirement years early and invest in a low-risk way. NPS investments allow you to save in a methodical way during your working years, instilling a disciplined savings habit.

Also read: Which is The Best Pension Scheme in India?

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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