Open an NPS Account And Save At Least ₹62,400 In Taxes Every Year

One of the most effective retirement schemes in India is The National Pension Scheme (NPS). It not only helps you build a substantial retirement corpus but also offers significant tax benefits. In this blog, we will guide you through the process of opening an NPS account on TrueFin, and explain how you can save up to ₹62,400 in taxes per annum.

NPS Account

We will discuss the benefits of NPS for employees and employers and discuss strategies that will help you optimise your NPS investments and achieve your financial goals.

What is the National Pension Scheme (NPS)?

NPS is a government-backed pension scheme designed to provide retirement benefits to all citizens of India. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS offers a mix of equity, corporate bonds, and government securities to help you build a diversified portfolio to grow your retirement corpus.

What are the top benefits of NPS?

For Employees

• Tax Savings: All contributions made to NPS are eligible for tax deductions under Section 80C and Section 80CCD(1B) of the Income Tax Act, 1961.
• Retirement Security: It provides a regular income post-retirement.
• Flexibility: You have the flexibility of choosing your pension fund manager and investments.
• Portability: The account can be operated from anywhere in India.
• Low Cost: Being one of the lowest-cost pension schemes, NPS ensures that most of your contributions go towards building your retirement corpus.

For Employers

• Employee Retention: Offering NPS can be a valuable benefit that helps retain talent within the organisation.
• Tax Benefits: Employer contributions to NPS are tax-deductible under Section 80CCD(2), making it a cost-effective benefit for the company.
• Corporate Social Responsibility (CSR): Providing NPS can enhance the company's CSR initiatives by contributing to employees' long-term financial well-being.
• Improved Employee Satisfaction: Employees appreciate companies that invest in their future, leading to higher job satisfaction and loyalty.

Open your NPS Account Now and save at least ₹62,400 in Taxes Every Year

Understanding the Tax Benefits

Section 80C

Under Section 80C of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh for your contributions to the NPS.

Section 80CCD(1B)

In addition to the deductions under Section 80C, you can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B) for contributions to the NPS.

Thus assuming that you are in the 30% bracket, you can save up to ₹62,400 in taxes through Section 80C & Section 80CCD(1B)

Employer Contribution

If your employer contributes to your NPS account, you can claim a deduction under Section 80CCD(2). This deduction is up to 10% of your salary (basic + DA) and is over and above the deductions available under Section 80C and Section 80CCD(1B).

You can have a maximum tax deduction of ₹7,50,000 under section 80CCD(2).

Steps to Maximise Your NPS Benefits

Maximise Contributions

One of the best ways to maximise your NPS benefits is by contributing as much as possible since there is no cap on investing in your NPS account.

Here's how you can achieve it:

Contribute to the Full Extent Allowed Under Section 80C:

• Under Section 80C of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh for your contributions to NPS. This includes contributions to the Tier I account.

Utilise the Additional Deduction Under Section 80CCD(1B):

• Beyond the ₹1.5 lakh limit under Section 80C, you can claim an additional deduction of ₹50,000 under Section 80CCD(1B). This means you can effectively save taxes on up to ₹2 lakh of your income each year.

Regular Contributions:

• Make regular contributions to your NPS account. Even small, consistent contributions can accumulate to a substantial corpus over time due to the power of compounding.

Employer Contributions

Take full advantage of employer contributions if your employer offers NPS benefits. Here's why and how:

Tax Benefits Under Section 80CCD(2):

• Employer contributions up to 10% of your salary (Basic + Dearness Allowance) are eligible for tax deductions under Section 80CCD(2). This is over and above the deductions available under Section 80C and Section 80CCD(1B).

Increase Your Retirement Corpus:

• Employer contributions not only provide immediate tax benefits but also significantly boost your retirement corpus over time. Ensure that your employer contributes to your NPS account if they offer this benefit.

Additional Tips for Maximising Your NPS Benefits

Start Early:

The earlier you start contributing to your NPS account, the more time your investments have to grow. Starting early can significantly increase your retirement corpus due to the power of compounding.

Leverage the Tier II Account:

While Tier I is the primary retirement account, Tier II offers greater flexibility with no withdrawal restrictions. You can use Tier II for additional savings and short-term financial goals.

Stay Committed:

Consistency is key to building a substantial retirement corpus. Stay committed to your contribution plan, even during financial ups and downs.

Understand Withdrawal Rules:

Familiarise yourself with the withdrawal rules and exit options of the NPS. Knowing when and how you can access your funds will help you plan your retirement better.

Utilise Online Tools:

Use online tools and calculators provided by NPS websites to plan your contributions and estimate your retirement corpus. These tools can help you visualise your retirement plan and make necessary adjustments. You can visit TrueFin NPS Calculator to check your overall retirement readiness and plan your finances effectively.

By following these steps and making informed decisions, you can maximise the benefits of your NPS account and ensure a financially secure retirement. Whether it's through maximising contributions, leveraging employer benefits, choosing the right investment mix, or regularly reviewing your portfolio, every step counts towards building a robust retirement corpus.

Conclusion

Opening an NPS account is not only easy but also offers substantial tax benefits that can significantly boost your retirement savings. By understanding the process and leveraging the tax deductions available, you can save up to ₹62,400 in taxes every year. Additionally, transferring funds from other retirement schemes to your NPS account can help you create a large, tax-free corpus for your golden years. Start your NPS journey today with Truefin and take a crucial step towards a secure and financially stable retirement.

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