One of the most important responsibilities of any Indian citizen is to pay taxes to the government. This money is used for the development of the country. Taxation is a very elaborate system, with uncountable number of rules and regulation. These are maintained under the guidelines set by the Income Tax Act, 1961.
The guidelines are divided into different sections, and this article will discuss about Section 80 CCD (1B), which allows specific tax exemptions. To enjoy the benefits under this section, you need to invest money in certain specified investment instruments. One of these options is the National Pension Scheme (NPS). By investing in NPS, you can claim a tax deduction of up to INR 50,000 on your income. However, before investing any money into NPS, you must learn more about it to get a better idea.
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Investing in NPS
Government employees, as well as, professionals working in the private sector are allowed to invest in NPS. Apart from the tax deduction under 80CCD (1B), NPS offers both regular income and a lump sum benefit, making it a popular investment option. This government-backed investment instrument reinvests your deposits in different securities, like equity. From all the equity-based investment options, NPS is also one of the most affordable one.
The returns received from the NPS depend solely on the performance of the market. Hence, the benefit amount is not prefixed. However, the same reason exposes you to the possibility of receiving a higher benefit compared to most other investment instruments.
Benefits of NPS investment
Investing in NPS will allow you to receive a tax deduction of INR 1.5 lakh under Section 80C and an additional discount under Section 80CCD, which amounts to INR 50,000. This takes your total deductible amount to INR 2 lakh. All you have to do is to divide the investment made towards NPS accordingly while claiming tax exemption under Sections 80CCD (1B) and 80C.
Section 80CCD (1B)
Until the year 2015, the investors of National Pension Scheme under 80CCD were entitled to receive an income tax exemption of up to INR 1 lakh. In 2015, the government introduced a new sub-section under 80CCD of the Income Tax Act, namely (1B). Under the new section, the individual NPS investors are eligible to get a tax deduction of up to INR 50,000.
Understanding Section 80CCD will allow you to invest in NPS to maximize your benefits by claiming the tax deduction accurately. This will add up to your already impressive monetary gains from NPS.