National Pension System: Tax Savings from the National Pension System: NPS investment proof documents to be submitted to get tax benefit

National Pension Scheme (NPS) subscribers are eligible to claim tax benefits. Note that tax benefits are only applicable to investments in Tier I account.

What is NPS?
The National Pension System (NPS) is a voluntary defined contribution pension scheme created to help members make the best choices for their future. The National Pension System (NPS) pools individual savings into a pension fund, which is then invested by PFRDA-regulated professional fund managers in accordance with approved investment guidelines in diversified portfolios that include equities, corporate debt, government bonds and bills. Depending on the profit received on the investments placed, these contributions will increase and accrue over time.

Exclusive tax benefit to all NPS subscribers u/s 80CCD (1B)
Only NPS subscribers are eligible for an additional deduction for investments up to Rs. 50,000 in NPS (Tier I Accounts) under Section 80CCD (1B). This is in addition to the Section 80C deduction of Rs. 1.5 lakh allowed in the Income Tax Act of 1961.

Also Read: How to get a tax deduction of up to Rs 9.5 lakh just by investing in NPS

Investment safe for NPS
The transaction statement can be submitted by the Subscriber as investment documentation. Alternatively, “All Citizens of India” subscribers can receive the receipt of their Voluntary Tier 1 Account Contribution for the required financial year by logging into their NPS accounts. To download it, log in to your NPS account and use the “Calculation of Voluntary Contribution under the National Pension System (NPS)” sub-menu under the “View” main menu.

Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS:
Tax advantages of partial withdrawals:
Before turning 60, subscribers can make limited partial withdrawals from their NPS tier I accounts. Budget 2017 says withdrawals up to 25% of subscriber contributions are tax-free.
Tax advantage when purchasing an annuity:
The amount invested in the purchase of an annuity is completely tax-exempt. However, the annuity income you receive in subsequent years will be taxable.
Tax benefit for lump sum withdrawals:
After the subscriber turns 60, up to 40% of the total corpus withdrawn as a lump sum is tax-free.

For example, if your total corpus at the age of 60 is 10 lakhs, you can consider 40% of this amount or 4 lakhs without tax. So you will pay no tax at the time of retirement if you use 40% of the NPS corpus for a lump sum and the remaining 60% for buying an annuity. You only have to pay income tax on the annuity income you receive in subsequent years.

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