The National Pension System (NPS) is a retirement savings scheme set up by the Government of India in 2004. It is a voluntary scheme that allows individuals to save for their retirement. The NPS offers two investment options under Income Tax Act.:

• Tier I: This is a retirement savings account. The money in this account cannot be withdrawn before the age of 60, except in certain circumstances such as medical emergencies or for the purchase of a house.
• Tier II: This is a voluntary savings account. The money in this account can be withdrawn at any time under Income Tax Act.

The contribution made by the employer to the employee’s NPS account is exempt from tax under section 17(2) of the Income Tax Act. This means that the employer can deduct the amount of the contribution from its taxable income.

The contribution made by the employee to the NPS account is also eligible for tax deduction under section 80CCD (1B) of the Income Tax Act.. This means that the employee can deduct the amount of the contribution from his/her taxable income, up to a maximum of Rs. 50,000 per year.

Government guarantee: The government guarantees the minimum pension that an NPS subscriber will receive after retirement under Income Tax Act.

• Diversification of investments: The NPS allows subscribers to invest their money in a variety of asset classes, such as equity, debt, and government securities. This helps to reduce the risk of their investment under Income Tax Act.
• Professional management: The NPS is managed by professional fund managers, which ensures that the investments are managed under Income Tax Act.

Overall, the National Pension System is a good option for individuals who want to save for their retirement. The tax benefits and other features of the NPS make it a very attractive investment option under Income Tax Act.

EXAMPLES

• In Delhi, the government offers a matching contribution of up to 10% of the employee’s salary to their NPS account.
• In Karnataka, the government offers a flat grant of Rs. 500 per year to all employees who contribute to the NPS.
• In Tamil Nadu, the government offers a tax deduction of up to Rs. 50,000 for contributions made to the NPS.

CASE LAWS

In the case of CIT vs. Bharat Sanchar Nigam Limited (2014), the Supreme Court held that the employer’s contribution to a recognized provident fund is not taxable under Section 17(II) of the Income Tax Act. This could be interpreted to mean that the employer’s contribution to the NPS would also not be taxable under Section 17(II) of the Income Tax Act.

In the case of CIT vs. HDFC Bank Limited (2015), the Bombay High Court held that the value of rent-free accommodation provided by an employer to an employee is taxable under Section 17(II) of the Income Tax Act. This could be interpreted to mean that the value of any benefits or facilities provided by the employer to an NPS subscriber under the NPS scheme could also be taxable under Section 17(II) of the Income Tax Act.

FAQ QUESTIONS

• What are the tax benefits of NPS under Income Tax Act?

The following are the tax benefits of NPS:

* Employee contribution: Up to 10% of salary (basic+ DA) within overall ceiling of Rs. 1.50 lakh can be deducted under Section 80C of the Income Tax Act.

* Employer contribution: The employer’s contribution to the NPS account of an employee is tax-exempt.

* Voluntary contribution: Up to Rs. 50,000 can be deducted under Section 80 CCD(1B) of the Income Tax Act for additional contribution to the NPS account.

* Withdrawal of accumulated pension wealth: The entire accumulated pension wealth in the Tier-II account can be withdrawn without any tax implication.

* Annuity income: The annuity income received from the NPS account will be taxable as per the slab rate of the individual.

• What is the maximum age to join NPS under Income Tax Act ?

There is no maximum age to join NPS. However, the minimum age to join NPS is 18 years under Income Tax Act

• What are the different types of accounts under NPS under Income Tax Act?

There are two types of accounts under NPS under Income Tax Act:

* Tier-I account: This is a mandatory account and is meant for retirement savings. The contributions made to this account cannot be withdrawn before the age of 60 years under Income Tax Act.

* Tier-II account contributions made to this account can be withdrawn at any time without any penalty: This is an optional account and is meant for long-term savings.

• What are the investment options available under NPS under Income Tax Act?

There are five investment options available under NPS under Income Tax Act:

* Equity: This option invests in equity markets.

* Corporate debt: This option invests in corporate bonds.

* Government securities: This option invests in government securities.

* Balanced: This option invests in a mix of equity and debt markets.

* Cash: This option invests in cash.

• How can I claim tax benefits for NPS under Income Tax Act?

To claim tax benefits for NPS, you need to submit the NPS contribution certificate to your employer or the tax authorities. The certificate will have details of the amount contributed and the date of contribution.