Can I invest more amount in NPS Tier-1 account? | Value Research Let’s see how much can you invest in NPS and some other significant details
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Can I invest more amount in NPS Tier-1 account?

Let's see how much can you invest in NPS and some other significant details

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I have a Tier-1 NPS account. My employer contributes 10 per cent of my basic salary. How much additional amount can I invest in NPS Tier-1 account? Is there any difference in taxation at maturity/ withdrawals for additional amounts? - Anonymous

While there is a minimum initial contribution of Rs 500 and an annual contribution of Rs 1,000 in NPS, there is no cap on how much you can contribute to your NPS Tier 1 account.

It is noteworthy that by investing in NPS, investors can not only secure their retirement but also save on taxes of up to Rs 1.50 lakh a year under section 80C of the Income-Tax Act. Read more about NPS.

In addition, you can get an additional Rs 50,000 deduction under section 80 CCD(1B). So if you have other claims including NPS, you can use section 80C + 80CCD(1B) to get a maximum deduction of up to Rs 2 lakh.

At the time of filing tax return, you can use other investments that get the benefit of 80C with NPS and claim a total of Rs 2 lakh. For example, if you invested about Rs 1.50 lakh in LIC and Rs 50,000 in NPS, you can use both the contributions to claim tax deduction - a total of Rs 2 lakh.

Section 80CCD(2) - Claiming deductions for employer's contributions to employee's pension fund
Under this subsection, contributions made by the employer towards an employee's pension fund are eligible for deductions. You can claim up to 10 per cent of your annual income (basic salary + dearness allowance). The contribution amount made by the employer can be equal to or higher than the contribution made by the employee. But there's no specific ceiling on this deduction.

Let's take an example. Suppose your annual income (basic + DA) is about Rs 15 lakh and your employer has contributed Rs 2 lakh to your NPS account. You can claim Rs 1.5 lakh (10 per cent of your income) for tax deduction and you'll be taxed on the remaining Rs 50,000. Do note that this section is applicable only to the salaried employees and not self-employed individuals. You can check your NPS performance here.

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Withdrawing from your NPS account
When it comes to withdrawing from your NPS account, it is the same procedure irrespective of additional contribution. You can withdraw up to 60 per cent of the NPS corpus as a lump sum upon attaining the age of 60. The remaining 40 per cent has to be used to purchase annuities. If the NPS corpus is less than or equal to Rs 5 lakh, then the entire amount can be withdrawn as a lump sum.

If you wish to make partial withdrawals from an NPS Tier 1 account, you have the option to do that up to three of them during the lifetime of the NPS account. They can be made only on specific grounds such as medical treatment, higher education of children, the marriage of children, home purchase, etc. These withdrawals are tax-free and cannot, in aggregate, exceed 25 per cent of your contributions.

Suggested read: How to reduce your NPS transaction costs

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