The National
Pension System (NPS) and the Atal Pension Yojana (APY) are pension schemes
meant to provide a regular income to the subscribers based on the amount of
contribution. Both APY and NPS are managed and regulated by the Pension Fund
Regulatory and Development Authority (PFRDA).
While APY carries a fixed return, and hence the pension amount is fixed, the
returns to National Pension System are not fixed. The National Pension System
returns will rely on the performance of the fund alternatives in NPS that
represent specific asset classes such as equity/debt.
There are various tax advantages reachable to the subscribers
of each National Pension System, and Atal Pension Yojana (APY) at the time of
contribution or when the scheme
matures. There is a provision of pension in each the schemes, and the tax
treatment is similar in them.
Let us see the tax benefits available in NPS, Atal Pension
Yojana for the benefit of taxpayers. The subscriber under the NPS is eligible
to get tax benefit on the contribution, but only up to a ceiling. And, this
ceiling depends on whether one is salaried/self-employed.
Section 80CCD (1) permits an employee, being an individual employed
by the Central Government on/after 1st January 2004 or being an individual
employed through any other employer, a deduction of a quantity contributed
toward National Pension System concern to a ceiling of Rs 1.50 lakh under
Section 80CCE. However, the deduction shall not exceed an amount equal to 10%
of the Basic Salary, which include Dearness Allowance (DA), however, excluding
all other allowances and perquisites.
In case of self-employed, the
contributions up to 20% of the Gross Income is deductible from the taxable
income under section 80CCD (1) of the Income Tax Act, concern to a ceiling of
Rs. 1.50 lakh under Section 80CCE. Similar tax treatment is applicable to the subscribers of Atal Pension
Yojana.
Further, the purchase price of the annuity on exit from National Pension System is
not taxed. As per the income tax rules, the National
Pension System corpus is exempt up to 60% of amount due at the time of
closure or opting out of the scheme. So, the withdrawals up to 60% of the
National Pension System corpus is tax-free in the hands of the subscriber.
The pension
or annuity is to be purchased by the National Pension System subscriber by
using the balance 40% of corpus. This pension income of the National Pension
System subscribers is considered as a part of normal income and taxed at the appropriate marginal
rate of tax, applicable to the subscriber.
In Atal Pension Yojana, the annuity amount is fixed by the
government, and is provided to the subscriber from age 60. The tax
treatment on an annuity from APY
is similar to the subscribers of National Pension System and is taxable as per
one’s slab.
In addition, the tax benefits that National Pension System subscribers can avail are:
As per section 80CCD(1B), the taxpayer either employee or self-employed, is allowed a deduction on the amount contributed towards National Pension System (NPS) up to Rs 50,000. The deduction under Section 80CCD(1B) is over and above the deduction availed under Section 80CCD (1), however, the same amount can’t be claimed each under both the sections.
Salaried employees also get the tax benefit on employer contribution to his or her National Pension System account. Employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA) can be claimed as a deduction from the taxable income under section 80CCD (2) of the Income Tax Act,1961. There is no upper cap in phrases of the quantity on this tax deduction. This deduction is over and above the ceiling restrict of Rs 1.5 lakh provided under Section 80C and restrict of Rs 50,000 under Section 80CCD(1B).
